Market gains show signs of strain

While stocks make a nearly vertical ascent, ignoring ongoing economic weakness, blemishes are appearing.

By Anthony Mirhaydari May 15, 2013 2:40PM

Instead of selling in May and going away, investors are scrambling to buy into a stock market that's gone parabolic.


Shares are blasting higher with no clear catalysts and indirect opposition to weak economic data, extended market technicals, extreme bullish sentiment, and signs we are in the late stage of the corporate profit cycle. And it enabled quick hit profits in picks like AMD (AMD) and Nokia (NOK), which gained 45% and 10% respectively since I recommended them earlier this month.


Wednesday, on confirmation of an ongoing European recession -- now joined by Germany -- and weakening manufacturing activity here at home, there were signs that this is a surge to sell into. Here's why.


First, portfolio protection is being bid here as the CBOE Volatility Index (VIX) rises out of a basing pattern -- forming a positive divergence with the stock market and suggesting that options traders are viewing the latest rush into stocks skeptically. While stocks have been grinding higher over the last two weeks, the VIX has been stabilizing near 13, holding above its March and April lows.



Today, the VIX's is challenging its 50-day moving average in a big way for the first time since April as its Coppock Curve trend indicator rolls over into uptrend territory.



Stock market copyright ComstockEurope is also becoming unfixed as no amount of cheap Japanese money flowing into the Eurozone sovereign bond market can address a lack of export competitiveness, a broken banking system, and massive unemployment. The euro is dropping out of a bear flag pattern, challenging its March/April lows as it falls away from its 200-day moving average. Ugly.

This has everything to do with the fact that Germany, which was the beating heart keeping the Eurozone alive, has succumbed to the recessions elsewhere in Europe as its economy contracted on a year-over-year basis in the first three months of the year. France, the other major core country in the Eurozone, dropped into a technical recession after suffering its second consecutive quarter of year-over-year GDP contraction.


No surprise then that Spanish bank stocks are rolling over, including Banco Bilbao (BBVA), shown above.



Today, I'm adding the high-risk VelocityShares 2x VIX (TVIX), a short in BBVA, and the ProShares UltraShort Euro (EUO) to my Edge Letter Sample Portfolio


Disclosure: Anthony has recommended NOK, TVIX, EUO, and BBVA short to his clients.


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.


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May 15, 2013 4:13PM
Does he ever stop? Did I miss something? Didn't he just say last week he was a buyer? Now he is up to shorting again. Must be down to about 2 Edge subscribers, mom and dad, and down to about $2.00 left to invest with. Tough to make money when your a bear and the market is up, up, up. I don't try to anticipate market direction I just go along for the ride on either side.  I am constantly amused by this mans writings and take on the market and he gets paid for this drivel?
May 15, 2013 6:20PM
Tony is right .We are broke just look at the debt to GDP ratio.The Fed knows the recovery is a failure but  because of the record low interest rates and easy quantitative easing it has not imploded.It is going to get real nasty when the rates have to go up and the devalued dollar makes prices on everything go through the roof. 
May 15, 2013 5:38PM
Bottom line, the problems haven't gone away. It's that Cheap Money aka Credit via the Global Feds that allowing a extended Bull Run.  Stocks go up on good news, stocks go up on bad news. That's a Stock Market even perma Bulls should be afraid of.
May 15, 2013 4:39PM

The stock market is in a typical bubble pattern and all bubbles burst.  Just ask yourself - does it make sense for the stock indexes to go up every time the Fed announces more toxic asset buying (QE or monetary stimulus) because our economy is so weak?


Stock buyers beware....

May 15, 2013 7:05PM
The biggest problem is there is no where else to put your money that will give you any kind of return at all.
May 15, 2013 4:32PM
Thanks for your money, Anthony and all the brainwashed trolls that follow you. I bet you had to cover quite a few positions since we last talked so it is safe to say:  I REALLY took your money this time. Taking your money. Glad to do it. Taking your money is awesome. By the way, how many times have those ultra-short etf's you are always pumping reverse-split now?
May 15, 2013 8:12PM

What will Obama do when one of the IRS guys  tell the world the White House ordered them to investigate political opponents?   Since this seems to have happened in multiple IRS offices in many cities it had to be ordered by someone high up.  And since the White House KNEW about this for over two years and did nothing, and even had the IRS management lie under oath, one has to wonder how high up this went. 


Such corruption... Fast'n'Furious guns for Mexican drug lords bought and paid for with stimulus funds, then smuggled into Mexico in violation of US and Mexican laws... 


The raids on the Free Press for all their documents and sources.  Without a warrant on some secret judges subpoena? 


His clearly anti-Second Amendment stances that border on high treason.


And then their is Bengazhi...  4 dead, denied rescue missions, denied increases in security, and then the biggest issue of all is the made up LIE to American people about some anti-muslim film clip that they knew was a lie from the beginning...


Even Nixon looks honest compared to this President...  The blood of at least 5 people are on Obama's lying hands... 

May 15, 2013 4:53PM
This stock market is the sickest thing I have ever seen. The foaming market-mouthed masses refuse to see anything wrong, like how all this money printing is destroying the value of the U.S. Dollar. And forget the fundamentals. Europe. Japan. China. Disasters waiting to happen. The open bald-faced transparent manipulation of the markets. This stock market bubble is worse than the housing bubble I tried warning everyone about back in 2007. They all thought I was crazy then, too.
May 15, 2013 3:24PM

Same old rants out of you.Tax breaks for the rich is a great thing.The GOP response is

"big business creates jobs".Yes, however most of the jobs are for Mexico and China.

May 15, 2013 4:28PM
I think my work here is mostly done. Most writers are expressing and providing facts regarding the very dangerous position we are in. The markets rise daily but there is NO economy. Days like yesterday and today make millionaires we will never need and wipe out more and more who when gainfully employed actually make economy and revenues and support communities and amenities... you know, all the things in life that amount to something. Grubbers hoarding excessive cash NEVER amount to or are ever worth it. Democrat? Republican? Tea? Libertarian? Who gives a crap? Earthling? Yep, that's the one that matters and it should matter a whole lot right now. The world needs grubbers gone and that's a battle cry you will hear next. The French tore down the Bastille (and it's guards) with their bare hands. History is full of stories about what happens after the tipping point. Srange... but it's almost like there are souls who grub and never get it and end up returning time and again. Talk about loser karma. Sell, fools.
May 15, 2013 7:12PM
The way things are now, we´re going to see a repeat of the subprime crisis pretty soon. And also banks going under because of excessive risk-taking, as even Bernanke has already started to realize. Junk bonds are being bought at ridiculously low yields and stocks are being bought on margins by a lot of players. The Fed may soon react to it all by increasing bank reserve requirements and raising margins on stocks, but if they wait longer it may already be too late.
May 15, 2013 6:50PM

No clear catalyst?Ben Berdinky said they can speed up the printing if the market falters. What else

do you need for a catalyst? The market rallys on bad news more than it does on good news. There is no longer a free market and the Fed can not exit until the dollar is toilet paper.


Pretty much when the Fed quits buying things the stock market and bond market and housing market are all going to collapse.


Things are going to get pretty rough out there as the US economy drops below China's and probably India's economy in the coming months.


The US will attack Iran for sure this year -- that is why the government has pulled the string on developing shale oil. Back in 1973 it was known we had more shale oil than all the proven oil in the ground at the time. We could even pump out about 4 times as much oil if we open up the east coast and west coast to oil drilling. The rich in the east and west coast will just have to get use to their pretty land looking like a tar pit for a few decades.


The huge increase in US oil production is the run up to a huge battle in the middle east. This is how they think they will save the US economy by getting rid of the middle east oil in a huge battle and force the rest of the world into buying US oil.


This is all going to be triggered by the collapse of the US dollar as it has lost it's world currency status as China has signed up everyone now except the US to trade in yuan or as it is called the Chinese RMB.

May 16, 2013 8:09AM



There, I feel better now, have a very good day, I'm go'in fish'n.

May 15, 2013 10:46PM
May 16, 2013 9:23AM

This market reminds me of the forest fires in California.   Every time there is a small fire, they hurry to turn it off; thus, leaving combusting material in place for next fire.  Then, the next fire is a bit more difficult to turn off because there is more combusting material available.  Then the big one happened and they asked how the fire was uncontrollable.


This market goes up every time there is bad news because they know that if they were good news the Fed will stop the QE and their toxic monetary stimulus.  I wonder if the big one will be uncontrollable.

May 15, 2013 7:31PM

Why is everyone saying the market is significantly overvalued?  Many "quality" stocks have PE ratios < 16, are forecasted to increase earnings during at least the next few years and pay dividends > the yield on 10 year treasuries.  These indicators are dramatically better than you would expect before a "major" correction of >= 20%.  I am always prepared for a correction of <= 10% (it comes with the territory); however, I would be greatly surprised if we see a > 10% correction from today's close.  Meanwhile, I'll enjoy the ride up and collect my dividends which is better than sitting on cash earning < 1% or investing in intermediate-term bonds (which has minimal upside and a downside of 10%).


I encourage you all to stop trying to time the markets (except during the most egregious market valuations - which is not now).

May 15, 2013 4:14PM
This guy should write won article and print it everyday. They are all the same
May 15, 2013 7:26PM

The three recent incidents that have completely ruined my faith in the US government, all of which I believe were corrupt and carried out completely against the will of the American people:

1.      The Supreme Court's 2000 election “ruling” for no vote recount in Florida.

2.      The “no weapons of mass destruction found” Iraq war.

3.       The Wall Street bailouts of 2008 that continue today.

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