Market is weaker than it looks

As the Dow inches to new highs, a majority of stocks have tipped into a new downtrend.

By Anthony Mirhaydari Apr 3, 2013 2:09PM

Uptrends have a life cycle. First, the smallest, riskiest stocks push higher amid fear and skepticism as the economy quietly shows signs of improvement. Then, ancillary assets like copper, industrial commodities, and emerging market stocks move. The final phase sees mega-cap, defensive stocks levitate amid great fanfare as everyone focuses on the Dow 30 but ignores signs of economic stalling.


Right now, we're at the very end of the final phase. And as a result, despite the Dow's new closing high on Tuesday, the situation is weaker and more dangerous than it seems.


People aren't ready for this. Sentiment is off the charts. According to the Hulbert Financial Digest, newsletter writers are recommending a net long position that's tied for the second-largest since the survey's inception in 2000. The top spot was April 3, 2000 at the height of the dot-com bubble.  The other second-place reading was in early February.


 Businessman reading newspaper copyright A. Chederros, ONOKY, Getty ImagesPeople are also aggressively positioned. Mutual fund cash levels are plumbing historic depths. Assets in equity mutual funds and ETFs are carrying three-times more assets than money market funds -- a level seen at the bull market tops in 2000 and 2007.


But the evidence doesn't support the fever dream.


Economic data in Asia, Europe, and here at home has been disappointing. Manufacturing output is slowing. Unemployment is rising. Recessions are deepening. Negative corporate earnings preannouncements are rising ahead of the Q1 earnings season.



And technically, the picture is weakening. The Russell 2000 Small Cap Index is on track to close below its 50-day moving average for the first time since November as it disconnects from the stocks driving the Dow higher, defensive stocks like toilet paper maker Kimberly-Clark (KMB) and consumer staples maker Procter & Gamble (PG).



And market breadth has disconnected from the Dow's rise as well. Just 62% of the stocks in the NYSE Composite are above their 50-day moving average -- lows that were last seen in December.



The weakest started in materials and energy stocks, such as steelmakers, but has now spread like a cancer to semiconductors and banks. Just look at the way the Market Vectors Semiconductors (SMH) is rolling over. Or Morgan Stanley (MS).


In response, I'm adding the Direxion Daily Financial 3x Bear (FAZ) to my Edge Letter Sample Portfolio. Less aggressive options include the ProShares UltraShort Financials (SKF).

Disclosure: Anthony has recommended MS 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. 

Apr 3, 2013 2:39PM

Oh really?? Market 'weaker than it looks'???  Well....DUH!!!!  Everybody with an eye on REALITY and doesn't have his head up his asking price knows the 'market' is so discconected, so uncoupled from that reality it may as well be in a pretend world, which of is. Ben "Benny Bucks" Bernanke has been shoveling 85 billion a month in toilet paper dollars into the hands of his TBTF rich banker buddies who can win or lose without consequence. If they make a fortune...they keep it! If they lose a fortune....we pay for it!!!! What a sweet deal!!!


'Market weaker than it looks' is like comparing the tip of the ice berg to that which lies below.

Apr 3, 2013 2:41PM
Total fabrication here by this dufus, "bend over Ben." And all of these con artists on CNBC and others are all doing what they do best...scam people. Wall Street is a whore house as is America anymore. Money is God. And people especially in the financial world will do/say anything to make crooked money. 

Our economy will NEVER return to past days. Never. Corporations via sweat shops have eliminated about 8M jobs. Health care costs are out-of-sight and people are living longer with LESS money.

America is screwed as is Europe. 
Apr 3, 2013 2:35PM
Dow SP 500 record week= Market is weaker than it looks ? Geez Go figure ! The Stock Market is about to collapse the small investors will lose it all! The Big Boys will walk away with all YOUR MONEY IN THEIR pockets ! It is a rigged game a criminal enterprise ! TAKE YOUR MONEY AND RUN BEFORE IT IS TO LATE !
Apr 3, 2013 2:47PM

See, this is what happens when you let computers trade for you. The Wall Street Life Cycle is reduced to two weeks, the long term becomes 90 days, and a year becomes infinity when the value of everything is expected to fall to zero (credit Zero Hedge).

Apr 3, 2013 3:52PM
the market is such a disgusting goddam LIE...nothing more than the big hedges PUMPING and DUMPING big time since this excuse of QE10 has been allowed to continue. Bernanke and Obama should be in jail with Paulsen, Geitner, Greenspan et al.
Apr 3, 2013 3:43PM

weak jobs report?? the fcuk us say???, gee what gave it away?? the fact that you can walk down the street in any city and "SEE" there is no prosperity and no kind of "REAL" jobs being created, except of course more IRS agents to implement bullshiiiiiit obama regime regulations to destroy more of the private sector if there's anything left to destroy that is, 




meanwhile the MESSiha golfer in chief is blowing a $100million dollars on 'brain mapping' ???? if you mapped obama's brain, now what you'd find? well you know the empty space in a hand ball? there you go.....(see also the liberal mind mapped segment below) anyway, hmmm is this some veiled attempt to take a stab at Dr. BEn Carson (who called the little chain smokin' golfer out on his healthcare nightmare), a man that Obama couldn't even begin to come close to even if he lived 10,000 years, although don't bother 'brain mapping' an idiot libs brain, I can save the hundred million for you by telling you what a lib mind looks like, much like the surface of the moon, blown out chunks of brain matter therefore their brain is unable to think logically and uniformly, they are hell bent on hate, rancid racist rhetoric and Marxist ideologies and claim to be 'for the people' funny, STalin said the same thing anyway,


all those blown out chunks of brain make it impossible for the neuro transmitters to fire correctly, therefore they vote for , and vehemently support, make excuses for and idolize the communist American dream haters, the very same people that will destroy the liberal morons in the end as well, there you go, one hundred million dollars saved.

Apr 3, 2013 3:03PM
Mergers, acquisitions, strong stock buy back programs by corporations, almost no IPO's, and many moving back into the market with dismal money market, CD, and treasury returns. 85 billion a month in open ended QE, all rig the market to the upside. It's a simple formula of increased demand for a more limited number of shares to break it down to it's simplest terms. Every pull back seems to be viewed as a buying opportunity.
Apr 3, 2013 2:27PM
Indeed. It wasn't very strong in 2001 after April's crash and then 9/11. So grasping that state back then and then buffoonery since... the word "weak" is very nice but hardly accurate. I would estimate that the markets today are at least 2/3 false money with a reactionary derivative and/or debt contract to contend with. That's not a ying and yang relationship, it's a Tweedle Dum and Dee with Willy Nilly in between. It's been a significant while since big business has been legitimate. Platforms don't work and aged ones are obviously toxic. Sure, the markets are "weak" but the fundamental structure of America is in a very dangerous state. You cannot run back to a burned bridge and expect it to hold traffic.
Apr 3, 2013 4:38PM

Take away Wall street's security blanket and pacifier and then we will see the real truth.

Apr 3, 2013 4:39PM

Obama is still talking about green energy and gay marriage and now more cheap loans for people who can't afford houses but he's done

nothing about the 40 million on unemployment welfare foodstamps and the high energy gas food prices! he's pushing a socialist agenda!

Apr 3, 2013 3:52PM

The Dow has had a nice run up, even if the last few months have been staged, and it is very close to a down turn.  The Bands are no longer diverging, the Bottom Band has turned upward, the top Band slowly declining.  When the top Band breaks downward, we will have a change in the Trend; the Dow is due.


What type of correction is anyone's guess.  Will they allow it a nautral flow, or will it be manipulated?  More than likely the latter, only time will tell.  By all rights, it should be fairly deep, possibly a 50% retracement, which would take it down to the 11,000 area, but at this point only speculation.


Point is, brace for the change and the reactions that follow.

Apr 3, 2013 3:24PM

If you become a Long Term Investor instead of a "Market Timer" you wouldn't have to worry so much there Anthony ! And neither would your naive clients for that matter.


Quit buying into Anthony's game - Become a Long Term Investor of Large Iconic Dividend Stocks then you will always be a winner. Quit making investing hard - it's so simple any of you can do it !


Market to drop 50% tomorrow ?? I really don't care because my little money soilders are right where I want them - Then the Dividends will just buy more shares for me until it does bounce back. And it will, it always does ! Only the fools that try to "Market Time" lose !

Apr 3, 2013 4:01PM

Same article as last week, and the week before, and the month before and the year before...


Same comments as last week, and the week before, and the month before, and the year before...


Sooner or later it's going to take a downturn, they you'll all be right!  That'll show 'em!

Apr 3, 2013 4:19PM
Market is weaker than it looks?  So are you Anthony

Apr 3, 2013 3:28PM
What you Say?? You need your money to live on during retirement??? Can't afford to lose it???  Well listen to Anthony and Cramer they will suck you dry ! 
Apr 3, 2013 5:15PM
Who decides which comments are "best" in this blog?  It's pretty obvious that those who agree with the gloom and doom artists are always at the top, listed as "best" and those who disagree are closer to the bottom of the list.  Good grief, keep your sanity, diversify, and invest for the long term.  And remember that there's no such thing as "free" financial advice.  Someone's spin on the market, especially someone who's livelihood depends on it, will never be objective.  By all means read, but consider the source (if it is a Wall Street analyst) with a healthy dose of skepticism. 
Apr 3, 2013 7:56PM
BE a LONG TERM investor and you can IGNORE talking heads like Mirhaydari and 98% of the other talking heads on financial TV.    You will be less stressed out too.  And wealthier in the long run.
Apr 3, 2013 6:41PM
The leftist media does nothing but PROTECT Obama.  NO Republican stood a chance because MSN and the other.....thrill up my called journalist's DON'T report the bad news, which there is plenty of regarding Obama and his administration.  Yesterday it was reported, barely, that the poverty level is at it's highest in 50 years!  The market is smoke and mirrors, just like Obama.
Apr 3, 2013 4:57PM
Really? It's like watching paint dry, you kind-a know it will eventually dry,but you just don't know exactly when, do ya? That's the trick. When the market starts to go down on an everyday basis, then you will here old Tony explaining why you should buy into the market. Broken record syndrome. I like it.
Apr 4, 2013 7:44AM
Anyone who owns a good amount individual stocks, knows this supposed rally is not broad based. Be very careful.
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