Welcome to the sell-off

Once again, warning signs from high-yield bonds and emerging-market stocks prove prescient as equities tip over into a new downtrend.

By Anthony Mirhaydari Feb 7, 2013 1:57PM

 Arrow Down copyright ImageSource, PictureQuestClearly, as outlined in my recent columns and blog posts, I've been skeptical of this move to Dow 14,000. The fundamentals weren't there. The technicals weren't there.

 

And sentiment had reached extremes not seen since the 2007 and 2000 bull market tops. 


With political uncertainty over the horizon (elections in Europe, budget fights here at home) and signs that savvy traders were already headed for the exits (weakness in foreign stocks and "junk" bonds), I recommended that my readers and clients book long profits and add new short positions ahead of a pullback.

 

Thursday, for the first time in months, the Dow Jones Industrial Average (INDU) tipped into a new downtrend. Here's why I expect it to continue, and how you can profit from the return of reality to Wall Street.

 

Not only has the Dow dropped below its recent trading range, but technical directional indicators, from the Coppock curve to the percentage price oscillator to the parabolic stop-and-reverse, have all flipped into downtrend mode. So that's one red flag.

 

Another has been the recent weakness in leading indicators of the strength of the market.

 

 

Emerging market stocks, which are very sensitive to changes in the trajectory of global economic growth, peaked in early January and have been drifting lower ever since. Now, they are falling out of bed with the iShares Emerging Markets (EEM) slicing below its 50-day moving average for the first time since November. The iShares China (FXI) is on track for its firs close below its 50-day MA since September.

 

There's more.

 

High-yield "junk" bonds topped out two weeks ago and have been sliding lower -- even as stocks repeatedly bashed their head against Dow 14,000. Now, the iShares High Yield Corporate Bond Fund (HYG) is on track for its first sub 50-day MA close since November.

 

And relative to defensive, consumer staples stocks, the Morgan Stanley Cyclicals Index ($CYC) is falling at a pace not seen since November.

 

In response, I continue to recommend my clients hold short positions against key materials stocks, including U.S. Steel (X). But I'm also recommending new short against Europe via the ProShares UltraShort Europe (EPV) as well as the energy sector via the ProShares UltraShort Oil & Gas (DUG). I'm adding both DUG and EPV to my Edge Letter Sample Portfolio.

 

Disclosure: Anthony has recommended EPV, DUG, and X short to his clients.
 

Be sure to 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 anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

110Comments
Feb 7, 2013 2:46PM
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The oldest and best adage is never try to time the market!  It does not work! You may miss a downturn but you will also miss a sudden up turn.  If you keep predicting a downturn you will eventually be right just as if you keep predicting an up turn you will eventually be right.

  This guy should know that but he has to do something to justify his possition.

  I would be this guy is right less than half the time and you would lose your shirt following his advice.

  I have some snake oil abd prime florida swamp land for you!

Feb 7, 2013 2:52PM
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Anthony Mirhaydari - Stop trying to manipulate the market to your personal advantage.
Feb 7, 2013 3:01PM
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Sooner or later , Anthony....there WILL be a fire , as you 've yelled  " FIRE  " enough to be right

at some point .  The only people buying your " Letter " must be those who want to know what you're

thinking .....so they can do the opposite .  Pathetic ;  really ......

Feb 7, 2013 3:26PM
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There is an old saying, Never Fight the Fed...

If the Fed is going to continue their massive money printing, then the stock market will continue to adjust prices higher to account for the devaluation of the dollar.   This same thing has propelled gold from 853.25 (the day Obama took office) to 1672.45 today (a 96% increase).

As long as Helicopter Ben is going to print 85 billion/month (roughly $1000/family every month) the market will move higher in dollar terms.

Morale, of the story is don't fight the FED, just adjust your prices higher to reflect that....
Feb 7, 2013 3:22PM
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Next week Anthony will tell us to expect a rally. This guy flip-flops more than a fish out of water.
Feb 7, 2013 4:29PM
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What kind of an idiot declares a sell-off based on one day's trading?  I don' t understand why they keep this guy on staff.
Feb 7, 2013 4:30PM
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Welcome to the sell-off LOL

It's down 50 points and just yesterday it was up over 100

The market is crashing it is down 50 points LMFAO
Feb 7, 2013 3:13PM
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Short sellers just wait for another Mirhaydari column...the guy is a fraud.
Feb 7, 2013 2:29PM
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Anthony - you need a statistics lesson !!!
Feb 7, 2013 3:02PM
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I'm ready for the sale. I've clipped my coupons and the car is topped off.
Feb 7, 2013 5:02PM
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Did anyone read his last statement 

"In response, I continue to recommend my clients hold short position"

I cannot believe this guy has clients lol....shorting the market...WOW 

Feb 7, 2013 3:58PM
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When the DOW hits 12600, that would be a buying opportunity.  Let's see:  10 percent correction, 14K at the top, subtract 1400, that should be the ticket.  Just like clockwork.
Feb 7, 2013 2:51PM
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From the Coppock Curve to Anthony's POPPYCOCK - different name same BS.
Feb 7, 2013 3:21PM
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I think the budget talks will be depressing and, from Europe, Spain may finally decide to leave the euro pressed by its huge unemployment.
Feb 7, 2013 9:07PM
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The major mistake that most bears have made in the last few years is underestimating the impact of the Federal Reserve.  I would know, I'm a huge bear and I made the same mistake a couple of years ago.  You can throw out all the comparisons with 2007/2008 or with the tech bubble burst in the late 90s - the Fed wasn't pumping $85 billion every month into the economy back then.  We weren't running trillion dollar deficits back then either.  And with all this QE, you can throw out the charts too, because we're in uncharted territory.  With this much cash being injected into the economy every month, month in and month out, you can make any turd look pretty for quite awhile.  It's kinda like when the ugliest girl in school is voted homecoming queen as a joke - every knows it isn't real, but she's still the one wearing the crown for the night.

Feb 7, 2013 3:48PM
Feb 7, 2013 4:44PM
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Have no idea how this guy keeps his job.
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Anthony!

You are in good company.  I refer to Mr. Karlgaard, publisher of Forbes, in his WSJ articale, "The Stock

Rally That Isn't, 02-06-13."  But you have prepublished him with some of your other articles.

Congratulations!

William B. Smith

Feb 7, 2013 5:17PM
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Is Anthony going to post a negative article every day that the market decreases?  Now one should expect the market to rise every day.
Feb 7, 2013 9:04PM
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It could have been a lot worse, the market once again showed resiliency; manipulators got their way but weren't as happy as they could have been at the close...Oh well, lets see what tomorrow brings us.
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