3 reasons to fear a November sell-off

The evidence is building for an impending pullback.

By InvestorPlace Nov 5, 2013 11:47AM
Image: Stock market (© Digital Vision/SuperStock)By Anthony Mirhaydari

iplogoWhile this market looks unstoppable as central bankers keep pumping out cheap money, the evidence is building that a short-term pullback is likely.


We haven't seen an excursion below the S&P 500's 200-day moving average since December -- and that was the worst decline in the past two years.


The dreamlike complacency is settling in. Newsletter writers are more optimistic now than they’ve been since at least 1997. Active investment managers have added to their long positions and are now carrying their largest risk loans in seven years. And regular investors have added a record $41 billion to equity mutual funds and ETFs over the last three weeks. Going back to 2002, that beats the old record by more than 17%.


After October’s rocky finish for the stock market, here are three reasons you should worry about a November correction.


The taper

Above all else, the only thing that seems to matter to this market is the flow of monetary policy stimulus from the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan. As long as the money flows, everything else is ignored -- from slower earnings growth to unresolved fiscal issues in Washington.


Hawkometer


But the thing is, many don’t realize we face the prospect of a much more hawkish Federal Reserve policy making committee in 2014.


Two of the most hawkish regional Fed presidents will be voting FOMC members next year: Philly Fed president Plosser and Dallas Fed president Fisher. Deutsche Bank analysts see an even split between hawks and doves next year; a big swing from where a dovish FOMC is on policy now. Combined with the untested leadership of the next Fed chief, current vice-chair Janet Yellen, and we could see much more dissent and perhaps an earlier-than-expected and more vigorous taper of QE3.


Weakening economy

Despite the ongoing preoccupation with monetary policy stimulus, the truth is that the economy is less and less responsive to the treatment. There has been no change to the current QE3 program. And yet the economy is showing signs of stalling.


Manufacturing Output


Bond market derived inflation expectations are rolling over. Crude oil is in freefall. October vehicle sales missed expectations as inventories build. Fourth-quarter GDP is tracking at just 1.7% as the housing market hits an air pocket.


The Markit U.S. Manufacturing PMI is rolling over noticeably, as shown above, falling to lows seen during the 2012 growth scare that prompted the state of QE3 in the first place. So by that metric, QE3 has been a failure.


Technicals

From a technical perspective, there is a lot to worry about. Market breadth is declining as the selling pressure increases and increasingly fewer stocks hold the market aloft. The Dow Jones Industrial Average is struggling with a massive resistance zone between 15,500 and 15,700.


You can see this in the way the McClellan Oscillator, which measures breadth momentum, is rolling over in a way that accompanied recent market pullbacks.


Dow McClellan


Emerging market stocks are also looking quite weak, which is worrisome since the group tends to be the first mover of any major market trend.


The iShares Emerging Markets (EEM) has already lost its 20-day moving average after sliding sideways in September and October. In response, I’ve added the ProShares UltraShort Emerging Markets (EEV) to my Edge Letter Sample Portfolio.


Overall, I’m recommending that clients book profits, raise some cash, and adopt a more cautious positioning until these warning signs clear.


Disclosure: Anthony has recommended EEV to his clients.


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48Comments
Nov 5, 2013 2:24PM
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Didn't you guys do this story for August, September and October???
Nov 5, 2013 12:31PM
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Something's gotta change......this is a failed policy and it's becoming pretty apparent.  This economic recovery resembles this, wouldn't you agree?:

The Emperor's New Clothes" is a short tale by ans Christian Anderson about two weavers who promise an Emperor a new suit of clothes that is invisible to those unfit for their positions, stupid, or incompetent. When the Emperor parades before his subjects in his new clothes, a child cries out, "But he isn't wearing anything at all!" 

A vain Emperor who cares about nothing except wearing and displaying clothes hires two swindlers who promise him the finest, best suit of clothes from a fabric invisible to anyone who is unfit for his position or "hopelessly stupid". The Emperor's ministers cannot see the clothing themselves, but pretend that they can for fear of appearing unfit for their positions and the Emperor does the same. Finally the swindlers report that the suit is finished, they mime dressing him and the Emperor marches in procession before his subjects. The townsfolk play along with the pretense not wanting to appear unfit for their positions or stupid. Then a child in the crowd, too young to understand the desirability of keeping up the pretense, blurts out that the Emperor is wearing nothing at all and the cry is taken up by others. The Emperor cringes, suspecting the assertion is true, but continues the procession.
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Pretty much the Fed is stuck in QE3 or QE4 for the rest of the life span of the US economy which by the way will not be much longer.

 

There are three pressures on the US that will crush the US economy perhaps six.

 

0) Obama care will suck an extra $4,000 out of everybody's pocket and place it in the pockets of the executives running the insurance companies (which take 40 of premimuns to pay their bonuses) and hospital executive (which take 30 percent of hospital revenue to pay their bonuses)

 

1) Retired people are not working and taking money out of the economy at a fast pace $40,000 a year vs $10,000 a year the 2/3 person who is hired to replace the 10,000,000 retired workers each year. This will totaly crush the eocnomy given time.

 

2) GDP is a meaningless pumped up number which is over inflated by a factor of 2 now which means we owe twice our real GDP and that alone spells a total collapse of our economy. Why do you think the Fed has to buy so many T-bills and stocks and bonds??? Because no one else will and retired people are selling off so they can live.

 

3) China and the rest of the world is moving to yuan for trading faster than you can say what?

this will totally undermine the fact that everyone use to need dollars to trade with the dollar will become a third world currency in it's power. Saudia Arabia is moving away from the US and dollar which will hasten the down fall of the dollar.

 

4) The US military is going to lose it's edge on the rest of the world already we can not build tanks anymore they destroyed the factories or sold them to China (someone find out which) our two new planes the F-22 and F-35 are so bad that the military had to degrade their required proformance below the planes they are replacing. We are getting new planes that are not as good as the ones they are replacing and they cost more than 10 times as much to build. DOES THAT MAKE ANY SENSE. and most important OBAMA WANTS TO REDUCE THE US NUCLEAR FORCE TO ONLY 300 BOMBS. Heck Indian and China and Isreal already have more than that now.

 

5) The US economy is still in a Death Spiral of lost jobs and an ever weaker and weaker economy. It is still losing 350,000 $80,000 plus jobs a week and replacing them with 190,000 jobs each month where 70 percent of the jobs only pay $10,000 a year minimum wage at 29 hours a week.

 

The total collapse of the US economy will be on or before Sept 13 2015 folks be prepared

Nov 5, 2013 12:33PM
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The market is going to get extremely nervous, shaky and twitchy,(wild ups and downs) everyone is trying to grasp as much of the cheap money as they can. The market will not totally tank as long as the Fed's printing press's keep printing, but, when the Fed finally has to slow or stop the printing press's? The Fed can't keep interest rates near zero indefinitely, doesn't matter if the Fed tries a slow withdraw or goes cold turkey things are going to get very very rocky we are in extremely uncharted waters. Do a slow withdraw or go cold turkey both options sometime's kill the addict, (market/economy). But till then enjoy the rollercoaster ride.  
Nov 5, 2013 3:21PM
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Friday I heard a car guy talking up car sales. Folks are feeling a bit richer with the market up.  I had nearly the same feeling when all the real estate grubbers piled on and then that fizzled. This ACA could prove to be the cement over shoes though. With what was it a 1 1/2% increase in FICA we saw a bit of contraction in demand.  But remember this is mostly a sentiment based market at this point. No more fundeementals so who knows. Definitely not me, I'm predicting I'm done predicting.
Nov 5, 2013 1:04PM
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#1  - Obama

#2  - Obama

#3  - Obama 

Nov 5, 2013 2:25PM
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They might as well rename the markets QE Clearing House.
Nov 5, 2013 4:29PM
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Well with the absence of Rome I will take up his mantra......... This is market manipulation.

Nov 5, 2013 4:52PM
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"Impending pullback"

 

 Hmm...I believe that is the most creative term for total economic collapse I have heard in a long time. Takes the catastrophic sting right out of it. Well done!

Nov 5, 2013 1:27PM
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Printing money to keep the banks happy, while the banks are looking at big fines from the Eurozone for the banks complicity in the great recession: what a way to economic failure.
Nov 5, 2013 3:33PM
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Not me. I'm going the opposite way. Just pulled a few more percents out of the market.
Nov 5, 2013 12:17PM
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This article smacks of blatant market manipulation ... 
Nov 5, 2013 3:55PM
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A pullback is one thing. An epic collapse is another thing. The collapse is fairly certain to occur in the not too distant future...a couple of years at most. 
Nov 5, 2013 4:55PM
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Obama used the fed money to inflate stocks of his financial supporters and make them richer than god.

.It created no jobs .jobs been created by oil companies using new fracking technology and offshore conventional oil exploration.But increase the wealth of his financial supporters 30x.Stocks inflated Tesla,amazon ,Netflix,google,apple.and others .after inflated they sell them to 401k and shortsellers.he uses colluded middlemen that borrow from bailed out banks with no collateral.This is illegal and senate is quiet

Nov 5, 2013 1:09PM
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Hi Anthony, hope you are doing well. So many mornings I shared my coffee with you and you never knew.  :)
Nov 5, 2013 7:09PM
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Actually...I kind of thought manipulators would drive Markets up, traders probably take them down...

Not really sure who the scumbags are??

 

I sold a couple thousand shares today.....And I don't think I'm really any of the above. 

All I was doing is cutting back some, on a position.

Nov 5, 2013 7:23PM
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Keep an eye of Goldman Sachs... they always seem to know just when a bubble's coming. Weren't they the only house that got out of housing, just in time.

Nov 5, 2013 3:07PM
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End of August, I worried about an early(Oct.) then we blew through September half way decent..

Then along comes October, still worried about another pitiful fall from grace...

Finally near the end and within the last week, I put some of that cash back to work...

Picked some energy pipelines, and took a chance on Silver....

I guess we will wait and see where to put the rest, AND WHEN ??

Nov 5, 2013 4:06PM
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The Reasons to fear the Stock Markets are literally the same types of Reasons we have feared impending major Corrections in the Past. This certainly isn't the first, it however might be the last. I simply just don't see how the Manipulations of Decades gone by can continue. What financial Trickery can the Global FEDS pull off next. I mean really, what's left in the Playbook?

By the way, the Cement wasn't the ACA, the cement was the $500-700Trillion in farce Derivatives sitting spread across the Globe. Note that RBS just created a "Internal Bad Bank" containing $60Billion plus of toxic assets. Anyone want to guess how much they really have. Anyone want to guess how much other banks actually have.

The Moment we switched to a Fiat Based Money System the Clock was ticking. It's a miracle the con has lasted this long. The FEDS are trapped but that's might be exactly what they want. Their endgame is always different than ours.

Nov 5, 2013 12:46PM
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ok Anthony, you have spoken again, and now you  go back into your sandbox. There is always a chance the market can blow up any day, and of course IMHO the market is rigged, just like the casinos. If your going to play, then get in,make some $$$ and get out. Repeat the process over and over, and play with the big boys. There are a few exceptions of holding on long term, as in big oil, and energy plays, as long as the world runs on oil, that commodity will be in favor.

 Pick your long term plays, and make $$ on the others. The market is a game, just play for the win!

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