Even red-hot Twitter can't save this market

Stimulus fatigue is setting in, and short sellers are seeing new opportunities as a breakdown emerges.

By InvestorPlace Nov 7, 2013 4:28PM

Stock market crash © Kyu Oh/Photodisc/Getty ImagesBy Anthony Mirhaydari


The bulls are foaming at the mouth over the debut of Twitter (TWTR) and the second coming of dot-com mania.


Everything looked set for a surge to take the Dow Jones industrials ($INDU) up and over multimonth resistance on a flurry of greed and hype of the kind not seen since the late 1990s. Only, this time we have the added impetus of the "never will it end" monetary policy stimulus.


It wasn't supposed to be this way. Futures were up big premarket after the European Central Bank, in response to rising deflation risk and massive youth unemployment in countries like Italy and Spain, cut its policy interest rate to a record low of 0.25%.


This, like the Federal Reserve's no-taper decision in September, was a surprise, as most people expected action in December after updated economic forecasts were released.



Yet European stocks melted lower, an overnight ramp in U.S. equities futures has been completely reversed. The Russell 2000 small cap index has lost its 20-day moving average for the first time since early October debt ceiling scare. Emerging market stocks are in even worse shape, with the iShares Emerging Markets (EEM) losing its 50-day moving average for the first time since August.


Part of the problem is that stimulus fatigue is setting in. Another 0.25% off of Europe's short-term interest rates isn't going to do much when total production in Italy has fallen back to recessionary lows and youth unemployment in places like Spain and Greece is off the charts.



Moreover, Twitter's excitement is pulling down one-time momentum favorites like Facebook (FB), Tesla Motors (TSLA), Groupon (GRPN), and LinkedIn (LNKD).


Foreign favorites like Baidu (BIDU) are also suffering.


That's creating opportunities for short sellers in a weakening market as portfolio managers apparently need to sell older names away to add Twitter to their holdings.


The technical breakdown underway in the broader market is significant given how extreme bullish sentiment had become. Jason Goepfert at SentimenTrader notes that the sentiment of newsletter writers like me has reached levels that haven't been seen since at least 1997, active investment managers are carrying their heaviest load of market risk in seven years, and the ratio of assets in Rydex's bull and bear funds has reached levels preceding the last three market corrections.


Thursday, I added a short position in Facebook to my Edge Letter Sample Portfolio, which includes a short in Tesla that's up 15% since I added it on Oct. 29.

Disclosure: Anthony has recommended TSLA short and FB short to his clients.


More from Mirhaydari


Nov 7, 2013 5:02PM
Twitter may have created some wealthy people today but how many permanent high paying jobs were created?
Nov 7, 2013 5:08PM
The markets just set new highs and so did a lot of stocks like Microsoft. So we get a correction? That doesn't mean the sky's falling it just means there is still a lot of stuff that's not working like banks, employment, housing, interest rates and the US Government to name just a few.
Nov 7, 2013 5:42PM
Really -- an internet IPO that went sky high on it's debut ??? ... shocking ... (sarcasm).  They all go sky high ... The typical IPO trend goes like this ... (not the few that made real sustainable growth companies) but the TYPICAL IPO trend is -- couple days of unwarranted hype --- release -- a few select connected people and institutions buy it at any price and it keeps going up. It doesn't matter what they pay because it will generally go higher in the short run as they unload it to the small investor who somehow hasn't learn that it's a historically stupid (can't think of a kinder word) move to buy the stock that is NOT an IPO anymore. (They do like to say "look at me I bought an IPO ... but they didn't) they bought an extremely overpriced stock in the few days after the IPO. Then nothing happens for a few months but they eventually start to drop. It's reported as a "pullback" from the IPO hype price .. some people continue to hold (as they are trained to do ... it's only a pullback) ... then as the small investors with the overpriced stock start to get nervous it starts dumping until it's worth 10% of the IPO price.
Note ... Twitter has negative earnings negative net income and it's down even more Qtr over Qtr . .. great buy
Nov 7, 2013 5:38PM
Well this is a fine kettle of fish when a truly useless non-product like Twitter cannot save this clusterf*** of a....*ahem*.....rally. But seriously folks, this would be because, like Twitter, the market is based on nothing, produces nothing and exists only because of mass infusions of worthless Benny Bucks (now to be called 'Yellen Yen')
Nov 7, 2013 5:52PM

The US financial markets are dominated by toys and the financing required for the production and distribution of toys.  Take a look at NASDAQ,  Lots of 'nice to have' but not necessary products.  If you really, really want or need to invest think of firms that produce things that people need and that these firms have proven to meet consumer expectations. 

Nov 7, 2013 5:59PM
We never learn.  An expensive IPO for a business that has never made a profit.  Wasn't there something called a dot-com bubble a few years back?  Lets see where Twitter is in a month or two.
Nov 7, 2013 5:46PM
My, what a difference 24 hours can make in the markets.
Don't worry in an hours time soon in the near future the US dollar will plunge to zero and take the US stock markets to zero with it.
Nov 7, 2013 6:37PM

The real fatigue will happen as people wise-up to the massive and useless time suck of social media and these companies sink to a realistic niche in the market and second driver, people begin to understand the consequence of putting their lives out in public and massive data compilers and resellers.

Nov 7, 2013 5:32PM
so what does this make nitwit Twitter? Flakebook lite?? Fleecebook lite? Fonybook lite? Fraudbook lite? there are more than millions upon millions of fake and inactive nitwit twit accounts sooooooooo???? what the hell is this now?? hell even celebrity twitter 'followers' are fake!! more than half of them! man this world needs an enema! flush out all the nonsense and crap!

oh by the way: obama alone has 20million fake followers, that's right you idiot lefty obamazombies, your grand high exalted mystic Marxist muslim mendacious ruler has 20 MILLION FAKE FOLLOWERS!! hehe doesn't surprise me in the slightest!! figures! actually I believe he's got 2 legit ones if any, his arrogant manly wife and his sorry black marxist azz!.....
Nov 7, 2013 8:00PM
I don't even have a Twitter account. How can it save the Market?
Nov 7, 2013 5:12PM
Please fed -- make the magic happen ---- please !    I have been feeling so good with all the government initiatives to make the world a better place.
Nov 7, 2013 6:44PM
Save this market from what, Doomer?
Nov 7, 2013 7:11PM

i had no doubt TWTR would do well as an untapped and also untried resource. i would not state as a trend but we are seeing more investment in youth oriented by younger like a collapsing bridge to what once was. current gov't policy may be contributing to that as taking personal capital by force to support what is not youth oriented, don't think i need to name it.



Nov 8, 2013 10:37AM
I thought this guy retired.  Guess he got tired of his coloring books. So, once again we are confronted with meaningless charts to support meaningless suppositions. MSN money must really be hard up finding good financial writers.
Nov 8, 2013 1:46AM

I'm in total agreement with Anthony for a change....

Something afoot, but yet to be determined...The Good, Bad, then maybe Ugly..?


Bull Markets are born on Pessimism,

Grown on Skepticism...

Mature on Optimism and die on Euphoria.

John Templeton.


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