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.
Clearly, 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.
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 email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
IMHO the market is overbought, and I will patiently wait for the right buy in's. I will never follow this authors advice, or seek out his services. So, Anthony, quit crying wolf, and do a constructive article for once.
....question to the readers.......
If you feel his statements and advise are inaccurate....why do you even read his articles??
His opinion more than likely is light-years better than yours!
See you at a Dow of mid - 12,000's. I'm shorting and agree with him.
Way too early to call it a sell off. S&P still above1500.. Fed. still pumping and banks speculating 0% money.
i converted 20% to cash @ 14k and will sit quitely on bench till wall street trashes market
A.M. isn't a buy and hold guy he is a trader. He did have a buy on for awhile in this last upturn and has now taken it off. I'm not so sure i disagree and have trimmed my positions. The underlying economy and the 2 trillion we spend we don't have, Trillion deficit and trillion from Bennie bucks, doesn't exactly give me a warm fuzzy feeling. I'm not fighting the FED, but i'm sure not lying in bed with them either. Whenever rates go back to normal from being held artificially low from Bennies printing our debt interest is going to soar and be awfully ugly for us at a cost of a Trillion a year.
The world was going to end in 2007, then 2008, then 2009 and 2010 and 2011 and last year, in fact, the world has been going to end for thousands of years. Now it's still here, but no matter, now it's really going to end this year, those other years were just for practice. So those mired in the religion of "The world is ending", "Woe is me" and "What's the use", don't wait around for all the pain and misery, beat the Grim Reaper to the punch......how.....suicide!
It's painless, it brings on many changes! (courtesy of Mobile Army Surgical Hospital)
I don't remember 1929, but I remember October 1987. Did the world end? Nope!!!!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
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.