My patience and skepticism during the recent market melt-up is being rewarded on Thursday as stocks, particularly cyclical, economically-sensiti​ve issues, are pummeled for the second consecutive day. Everywhere I look, what were perfect 45-degree up-trends are being broken in dramatic fashion.

Financial and semiconductor stocks are suffering their first bout of significant selling pressure in months; joining with the material and energy names that have already weakened.

The question is: Will the selling continue? And if so, for how long?

The first consideration is that investors are finally awakening to the deteriorating economic fundamentals I've been writing about for weeks. That's because of the belief among the optimists, that cheap money from the Federal Reserve and other global central banks would paper over all problems. That illusion is being shattered in two places, allowing panic to creep in.

For one, the Fed's recent meeting minutes revealed that the inflation "hawks" on the Fed's policy-making committee -- those increasingly worried about the $85 billion-a-month money pump associated with QE3 and QE4 -- are growing in strength and aggressiveness. Fed chairman Ben Bernanke and vice-chair Janet Yellen are both "doves," in that they believe more should be done to bolster the economy, including boosting the stock market, despite downside risks including possible asset bubbles and higher gas prices.

So the fact that the hawks are willing to take on the top two members of the Fed shows resolve. And indeed on Thursday the hawks continued to press -- with Dallas Fed president Richard Fisher expressing his concern that markets may be hooked on quantitative easing, that he doesn't see a need for any more money pumping, and that he isn't alone anymore at the Fed in questioning the efficacy of QE actions.

He added there are signs the housing market is becoming speculative again. And in an affirmation of the point I made in my column this week, he said the wealth effect of the Fed's action on stock prices has resulted in less job gains than one would expect.

The second point, shattering the illusion that cheap money solves all, was a heavy dose of disappointing economic data Thursday morning. Europe's recession is deepening again, with the Composite Eurozone flash PMI reporting coming in below expectations at 47.3 vs. 48.2 last month. Any reading under 50 indicates a month-over-month decline in manufacturing and services activity.

The French economy in particular is under pressure, as German-pushed austerity measures out of Paris result in higher taxes and less confidence.

Here at home, activity also slowed as core inflation rose -- the exact opposite of what the Fed wants to see. The Philadelphia Fed Business Outlook Survey for February was particularly disappointing, falling well below expectations.

Given the historic level of investment confidence and bullish positioning heading into this pullback, the sell-off should have legs as the global economy stumbles into a new recession.

After focusing on shorts against basic materials and energy stocks in my Edge Letter Sample Portfolio, including a 25.3% gain in Cliff's Natural Resources (CLF) and a 13.1% gain in AKSteel (AKS), I've shifted my focus to new areas -- including capitalizing on the dollar's new-found strength against the euro via the ProShares UltraShort Euro (EUO). I'm adding leveraged inverse ETF exposure to semiconductors, the latest cyclical group to succumb to weakness, via the ProShares UltraShort Semiconductors (SSG).

Disclosure: Anthony has recommended CLF short, AKS short, EUO long, and SSG long to his clients.

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