Why the sell-off is just getting started

With Greece's new bailout plan in jeopardy, intense selling pressure triggers a number of warning signals.

By Anthony Mirhaydari Mar 6, 2012 4:13PM

Stocks fell early and often Tuesday as the situation in the eurozone continued to deteriorate. 


The Greek Bailout 2.0 plan is being jeopardized by weaker-than-expected participation in the country's debt swap offer and fears that its failure would result in €1 trillion in losses for European banks. Also adding to concerns is word that Ireland could require a second bailout package -- something that might not be forthcoming if the Irish reject a strict new fiscal austerity pact.

 

The result is what's set to be the worst market performance since December and the breaching of significant technical support levels. By all indications, the losses are just getting started.

 

Here's how you can profit from the emerging downtrend.

 

I've already said a lot about the intractable problems being faced by Greece, so be sure to review my recent blog posts. Overall, the country is headed toward a "hard default" -- the first in 60 years for a developed country -- and a very likely exit from the eurozone. By restoring its national currency, Greece can promptly devalue it and restore its economic competitiveness by making its exports and tourism industry more attractive to foreigners.

 

The problem of Ireland is a new wrinkle that has taken the market by surprise.

 

 

And as a result, people are selling and selling hard. In the process, a number of important foundations of the post-November uptrend are getting whacked:

  • Cyclical, economically-sensitive stocks are underperforming non-cyclical defensives on a scale not seen since the fallout from the collapse of Lehman Bros. back in September, 2008.
  • Breadth, calculated as the percentage of NYSE stocks above their 50-day average, is plummeting in a way not seen since November. 
  • Declining issues are outpacing advancing issues in a way not seen since last August's market collapse.
  • And the CBOE Volatility Index ($VIX), Wall Street's "fear gauge," has reached an extreme not seen since October.

For nimble traders looking to get in on the action, emerging market stocks is the latest group to roll over and suffer from a bout of severe underperformance thanks to safe haven inflows into the U.S. dollar. When the dollar does well, foreign stocks and commodities tend to suffer.

 

 

Monday, I added exposure to this by including the ProShares UltraShort China (FXP) in my Edge Letter Portfolio. Existing positions include a short in AKSteel (AKS), up nearly 17% since I added it on Feb. 14, and a short in Mechel Steel (MTL), up 14.2% over the same period.

 

For long-term investors, the best strategy would be to move to cash and wait out the storm. If that's not possible, I recommend a rotation into utilities and consumer staples -- areas that tend to limit their losses in situations like these. Examples include Duke Energy (DUK), which offers a 4.8% dividend.

 


Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.c​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


 

90Comments
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So, in July, when the market went down, I bailed out my 401K and moved it from stocks into money market.  Shortly after I moved it, I watched the stock market going back up, and up, and up, and up.  Last week I finally got tired of "missing the train," so I moved it back into stocks.

So in case you all wonder why the market is now going down down down, It's because of me and my impeccable timing!  The last time I made a major move like that was in January of 2001, just before the mega-crash, when I put some money in an IRA account in blue chip stocks.  It took all of 2 weeks for my stocks and my heart to plunge!

Maybe I should let you all know when I am moving my money again. :-(

Mar 6, 2012 6:32PM
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Greeks' debt is not our debt. The idiot business models that Goldman Sachs and others sold to investors to garnish global wealth is coming back to haunt them.

 

Time for Americans to invest in OUR future by installing apprenticeship programs in high schools so kids can learn a real trade (IT techs, welding, automotive, nursing, foreign language, etc.). They can come out of high school with enough credits to be a junior level in college.

 

Enough of this nonsense of get rich quick, short term monetary heroic's. Invest in the next generation. Our generation is already bankrupt.

Mar 6, 2012 5:57PM
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'the market' is nothing more than a huge casino !  Gone are the days when the price of a stock was a reflection of the growth, stagnation or problems of a specific company.  Here are the days of:  rabid speculation, short selling, shuffling of blocks of stock via the computer; and turbulence.

 

I predict a lot of you gamblers (those still in the delusion that you're smarter than the average bear and will make profits this spring) are going to have deep and nasty knife gashings in the palms of your hands.  Why, from grasping at falling knives. 

 

Don't say you weren't warned.

Mar 6, 2012 6:13PM
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The best thing for Greece and the world is for Greece to declare bankruptcy!!!!
Mar 6, 2012 4:48PM
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Funny enough, before I opened the article I knew who wrote it. This author has nothing good to say and trys to sell doom. Of course the market will see some sell off, you can't have a market that only goes up, not possible. I would say this is equal europe debt fears and proffit taking by investors.
Mar 6, 2012 6:15PM
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We have some major issues.

Europe.

Iran.

Our massive debt and unfunded liabilities.

Decreased numbers of working people in the US (yes, unemployment can go down while there are less jobs).

High fuel commodities prices.

We are nowhere near the end of this mess. We haven't even raised taxes and printed money to pay for our debt yet - just wait until the inflation comes.

So I figure we will besimilar to Japan. Let's see - the NIK  was at 36,000 about 20 years ago. It is around 10,000 today.   Well, 15 years to go and the DOW will be at 4,000.

Mar 6, 2012 8:38PM
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Wait until the Artificially LOW RATES IN THE US -(THANK YOU, BERNANKE AND OBAMA)- GET TO MARKET RATES.  The U. S. is screwed and the interest costs will not be able to be paid.  IE: see GREECE!!! 

 

 As of March 1, 2012 the U.S. had $15.5 TRILLION in debt not counting underfunded liabilities as of SEPT. 30, 2011 for S. S. of $18.8 TRILLION, Medicare $24.4 TRILLION, and Federal Employee Retirement and veterans benefits of $7.3TRILLION.

 

Think the cut in payroll tax OBAMA INSISTED ON WILL NOT BE DEVASTING IN COMING YEARS?  The Social Security part of the payroll tax was 5.20% and the Medicare part was 2.45% before the reduction starting in 2011.  This reduction from 5.20% to 3.20% in S. S. withholding is a decrease in revenue of 38% for 2011 and 2012.  It should have never been implemented and our SO CALLED LEADERS IN D.C. did not have the guts to say no on both party lines because the reelection to a cushy job is more important than doing what is best for the future of our country and young people who will be paying a dear price in the future. 

 

$15.5 TRILLION or to be exact it was  $15,501,014,716,144.  I say was because it goes up every minute.  This was a debt to each person of $49,587 and to every household of $130,610.  IT IS NOW MORE!!!

 

IT IS COMING!!! -

 

Remember 21% PRIME and 16% CD's.  One Year ARM Mortgages W/ 30 year amortization with a start rate of 17.5% with 2% yearly and 5% lifetime caps.  Think I am wrong?  Try the Jimmy Carter years.  I was in banking for 36 years.  When I started in 1973, mortgage rates were 7.50% and that was a good deal as a passbook savings account paid 5.50%! 

 

People who have only seen rates of 6.00% or below are in for a real eye opener.  Oh- the entitlement people will really be angry then.

Mar 6, 2012 7:45PM
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It has been just a matter of printing money to neutralize excess of debts going sour. It seems some countries are about to face reality soon, Greece is insolvent and nothing will make it escape defaulting on its debts. The same rings true for Portugal and Ireland, and later Spain and Italy. 
Mar 6, 2012 4:51PM
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I agree - a month ago this guy was a booming bull - all of a sudden he's so bearish I bet he craps in the woods - I bet he's got shorts everywhere and he's trying to promote them - I don't think they should let newsletter authors write articles promoting their picks - even if they do have to identify them
Mar 6, 2012 5:42PM
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The stock market of late is not for the weak of heart,and if you are not in the know invest in something safer.
Mar 6, 2012 7:47PM
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Anthony, excellent TA.

 

Put a fork in Greece; it's done.

Mar 6, 2012 5:43PM
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You were right.  Too bad some people did not heed your words.  This is just the beginning.  The money people have moved on to greener pastures.  Greece is about to drop from the EU tree like a piece of rotten fruit and Spain is not far behind.  You can only tell it like it is.  Not what everyone wants to hear.  This is a market that you must remain flexible and pro-active.  It is your money.  It is your decision.  Smile
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The second phase of the Greatest Depression is about ready to happen.

Time to SELL SELL SELL SELL folks.
Mar 6, 2012 7:55PM
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When were the markets ever up??? It is only better tha last year about 1 1/2% which is a disaster. We are not even beating CD rates yet!!!
Mar 6, 2012 5:12PM
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If you believe anything you read from these people who write on the web, you deserve what you get.  Ninety percent of this is crap, pure and simple.
Mar 6, 2012 6:53PM
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Yeah, vic5000, what we need is more perma bulls like cramer, who just a few days ago said the rally had legs. looks like 1 leg broke today. If you are a long term investor stocks are now on sale. Why complain about that? Buy like Buffett.
Mar 6, 2012 5:06PM
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This market is over bought by added stimulus money . Besides were not fools. If your neighbor goes broke that's their fault. In a global economy if your neighbor goes broke then you sink a little. If the majority goes broke then your all in the same boat. Your money is at more risk. Risky investing can lead to disaster. The author of this article is young & promising but experience is also smart. Profit takers are sitting like sharks waiting for the buyers. More Greece news which seems like a broken record is putting investors to sleep at high prices.
Mar 6, 2012 9:19PM
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usual suspects....sir...The only jobs that are available these days are in IT, nursing, automotive, and welding. Foreign language is a big ticket item as well. You really don't expect to send our children to a Liberal Arts School (not to offend degree holders) and expect them to nail that 50K job after graduation do you?

 

Maybe an Ivy league school, but really, in this economy?

 

Apprenticeship programs in High School (when created) that give you a lethal set of skills, and cut your college course study in half, is the way to go.

Mar 6, 2012 7:21PM
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Swinging for the fence looks good when everything goes right. How often does that happen. Buy stocks that pay dividends and are required regardless of what happens in the world. When everyone crows and flap their wings over a stock. Take your time they need your money to make what they want to happen happen. You buy in they sell out. No kisses. Your judgments works just need to use it.
Mar 6, 2012 5:55PM
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WELL SH^^^T GOOD BY BAD TIMES .HELLO REAL BAD TIMES.CAN YOU SPELL POKE SALAD
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