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.

109Comments
Feb 7, 2013 5:33PM
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This guy gets an erection every day the market drops.

Feb 7, 2013 5:31PM
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When people will be most complacent and helicopter ben keeps on printing the market will not only fall but it will be an unpresedented crash due to all the printing and people holding stocks will see 60-70% loss in one trading day.
Feb 7, 2013 5:31PM
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Anthony,

You're such a genius in being able to predict that the market will fall, and especially when it isn't rising.  Keep up the good work!

Feb 7, 2013 5:25PM
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 Mirhaydari : The sky is falling, THE SKY IS FALLING

Jubak: Relax, it's just a little rain

 Mirhaydari : ACID RAIN IS FALLING, ACID RAIN IS FALLING

Feb 7, 2013 5:22PM
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After three straight years of winter pump- spring dump, it's easy to anticipate a 4th year of the same, the difference is this year we have Home sales and prices rising, this will give the American economy footing that it hasn't had during the last 3 years. Plus I just refinance from 5% to 3.25%, this will save me about $300 per month or about $3,600 per year. I now have thousands more each year to invest or purchase goods and services with. I expect millions of other Americans are also taking advantage of the historically low rates, this will pump billions into the 2013 economy. The spring dump maybe just a spring dip this year.
Feb 7, 2013 5:18PM
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If you guys think the ultra rich buy and hold then I have a bridge Id like to sell you. I have played in the market for many years now and my best money has been made by taking my profit when I can then buying on a down turn day. To many buy and hold types panic and sell when the market goes bad and then on an upswing do the same thing panic and ened up buying in to late.
Feb 7, 2013 5:17PM
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Maybe Wall Street should learn that lesson that you don't always believe everything you hear without researching the data first.  Oh, that's right, they don't have to because that would ruin a possible sale. I think that Wall Street could get investors to sell their stocks on the rumor that the President stubbed his toenail on a shoe shine kit.  And I have to throw in one more comment, that we are now back to the Euro Crap again. Why does Wall Street make a big deal out of Europe and yet Europe does not make a big deal out of the United States?  Only goes to show you that Europe could care less about us, but for some reason New York has some convoluted love for Europe!!!!!!!!!!
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 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 4:49PM
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Not sure why MSN keeps giving this guy the headlines when he is almost always wrong!
Feb 7, 2013 4:44PM
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Have no idea how this guy keeps his job.
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 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 4:18PM
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"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."

 

 

MG...what is going to happen when Benny stops the presses?

Feb 7, 2013 4:16PM
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Anthony Mirhaydari - Stop trying to manipulate the market to your personal advantage.

 

 

Why not? the last three months has been nothing but manipulation by the 'financial houses'....

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 3:58PM
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Anthony is a con artist whose only goal is to get newbie investors to panic. He does this because A) He is shorting the market, or B) He has friends who are shorting the market and compensating him under the table. He is little better than a common boiler-room stock basher. A real scumbag. 

Feb 7, 2013 3:48PM
Feb 7, 2013 3:39PM
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Since 2008 i have bought alot of 1 oz. gold eagles, silver and duke and kinder morgan stocks and still holding these positions and doing quite well. I will stay this course for years to come. Our currency will eventually fall out of it's reserve status and gold will hit 5000-6000 an ounce.
Feb 7, 2013 3:31PM
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Well I've e-mailed Mr. Anthony in the pass  regarding some of his over the top collumns. I've booked some good short term profits against his advise. However, in this case I have to agree, in fact I pulled back around 45% into nice safe boring 3% fixed investments during the last week of December. I don't trust those republican bums in Washington to actually do their job, they just want to obstruct. Sure I missed some profits but I've got 2 years to go until retirement, bird in hand is worth 2 in the bush. And no thanks to Bush I will retire and be very comfortable.

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