Why it's time to sell
After a run to new record highs, stocks look set to weaken despite a strengthening global economy. Blame the yen.
Since late June, I've been saying stocks are headed for new record highs. I thought we'd see Dow 16,000, but I'll settle for 1,700 on the S&P 500. And accompanying the rise has been a turnaround in the economic data as countries around the world -- China, the United Kingdom, even Spain -- are showing renewed signs of vigor.
Yet over the last few days, a wave of selling pressure has washed over the market. Many technical indicators are now flashing red -- suggesting a correction lies ahead.
On the surface, this seems odd. Europe is exiting its recession, the Chinese are easing up on their credit constraints, and U.S. GDP growth is poised to reaccelerate past a 2% annual rate again thanks to Monday's narrower-than-expected trade deficit. So what's the problem?
Most pin the blame on fears the Federal Reserve will taper their open ended $85 billion-a-month bond buying stimulus by $10 or $20 billion next month. This would come in response to a strengthening economy and comments by normally stimulus happy officials that indeed, now is the time to take a step back.
Surely, this is playing a role. And it's disappointing to see Wall Street worry more about an ever-so-slight reduction in Fed stimulus than what is developing into the best global economic tailwinds since 2011.
The larger factor, I believe, has been the emergence of the Japanese yen from a consolidation pattern that dates back to April. Stay with me here. Making sense of the currency markets is enough to make even Wall Street veterans go cross-eyed. So I can't tell you what's driving the move.
All I can tell you is that this is a big deal since "yen carry trades" -- or bets against the yen that funded stock purchases and other investments -- has been one of the primary drivers of stocks all year. Now that it's reversing, hedge fund types are selling their investments, buying the yen, and closing the trade. The faster the yen rises, the faster the trades will need to be closed which in turn will bolster the yen more.
Japanese stocks are suffering the most right now, since a stronger yen reduces export competitiveness. As a result, I am adding short positions in Sony (SNE) and Sumitomo Mitsui Financial (SMFG) to my Edge Letter Sample Portfolio. Emerging market stocks also look weak, so I'm adding the ProShares UltraShort Emerging Markets (EEV). I've also sold my existing long positions.
For more conservative investors, consider booking profits and raising some cash here.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
MSN Money on Twitter and Facebook
Time for a little "Cut and Paste" action.....
Here's Anthony's opening statement today:
"Since late June, I've been saying stocks are headed for new record highs."
Here is Anthony's headline from June 21st. (where I come from, that's late June)
"Market optimism unravels" The bulls are reeling as everything that could go wrong did go wrong this week. And it's not just about the Fed"
Anthony is a speculator pure and simple. If you are reading his articles for investment advice, you are making a massive mistake.
I read his articles for the same reasons people watch the Kardashians. Mindless entertainment.
How does this guy sleep with himself?? His articles are a comedy act. Following his advice is why people overdose on sleeping pills. Hey Anthony, remember the "SKY IS FALLING" prognosis of yours all fall/spring/summer?
I really wonder if he's married to someone's daughter at MSN. He's awful. AWFUL!
When market is down
Anthony comes to town
Touting his charts and graphs
Spreads gloom and doom like a clown
I think this guy needs an appropriate nickname, something like.......Rollercoaster Man.
I have tried to be positive and not bash you Anthony but look this economy is struggling even with 2 trillion in debt per year. Who with a pulse can believe we are headed anywhere but to a Central American type Economy. 10% will own 90%. It is already baked in the cake. Talk about how free trade and globalizaion have decimated our tax base, our childrens working careers and our old folks not making a dime off their savings. Talk about the massive amounts of money the Internationals have amassed while doing the dirty work to our citizens while the politicians and fat cats eat cake. Talk about something that will correct and add to the mix for everyone. Mostly Tony get hooked up as an American and think about contributing something to make this a better place to invest. PLEASE
"Strengthening Global economy' ???? What freaking planet do you live on, Anthony!! lol
Really, you and all your paid market shill buddies are absolutely clueless about reality. You see the propped up FED 'Benny Bucks' fueled 'rally' and think we are in a 'recovery'??? Wow. wishful thinking I guess. I bet you even believe the Oboob administration lies, swindles, disinformation and manipulated stats, too, don't you? This crash is gonna hit you like a ton of bricks, buddy. Enjoy the ride!
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.