What Last Week’s Big Sell-off Means for the Market

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

If you were looking for a reason to be cautious about the financial markets, then last week’s action in stocks offered you one giant yellow light. The selling in domestic stocks nearly across the board pushed the major U.S. averages below their 50-day moving averages last week, a first salvo in what could well be a wider sell-off.

Advertisement.

Now, the breaking of the 50-day average does not mean that this current bull market is over, or that U.S. stocks now are headed into a downward spiral. The price action on Monday certainly was a positive for the bulls; however, what I do think is important is to view last week’s big selling as an early warning for the markets at large.

Take a look at the charts here of the price action during the past 12 months (through 4/14). As you can see, stocks in the SPDR S&P 500 (SPY) recently fell below the 50-day average, as did stocks in the PowerShares QQQ Trust (QQQ).

SPY_041614

Advertisement.

QQQ_041614

I do think the breakdown in the domestic equities last week does require you to take a look at how much equity exposure and risk you have in your portfolio.

Now, one thing to keep in mind is that every significant market pullback during the past 15 months actually has been a buying opportunity. If recent historical trends continue, then the yellow warning light we saw last week also may be a buy signal. However, I do suspect that the characteristics of this current pullback should make even the most ardent bulls a little worried.

Characteristics such as a very sharp slide off of their recent highs in market-leading segments such as biotech, semiconductors and other widely held stocks all could be a very bearish harbinger of things to come.

Advertisement.

Then we have the action at the Federal Reserve, with the central bank basically sticking to its “taper” guns and withdrawing the monetary stimulus candy by $10 billion per month. Finally, market leadership is shifting from growth to value, and even to Treasury bonds, yet another indicator of a change in the current market milieu.

Exclusive  George Gilder Discusses Blockchain, the Graphene Age and More in Interview on NYSE Floor

GCC_041614

DBC_041614

One area of the market making big headway of late is commodities. The charts here of the GreenHaven Continuous Commodity Index Fund (GCC) and the DB Commodities Tracking Index Fund (DBC) are prime examples of sectors trading in the opposite direction of stocks.

The bull market in commodities is one of the segments we currently are taking advantage of in my Successful Investing advisory service. If you’d like to find out more about what commodity ETFs to own, then I invite you to check us out today!

Advertisement.

Hall Wisdom

“The information is in the people, not in your head.”

— Edward T. Hall

The prominent anthropologist wasn’t referring to the movement of financial markets in the quote here but, in fact, this bit of wisdom from Hall does apply to stocks. That’s because regardless of which way you think the market should go, sometimes people act to buy and/or sell securities in counterintuitive ways. Realizing that “the information is in the people” signals for us to pay attention to the price action in stocks — and not on how you think or want the market to behave.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

Advertisement.

In case you missed it, I encourage you to read my e-letter from last week about what 2014’s lower interest rates mean for investors. I also invite you to comment about my column in the space provided below.

Exclusive  Day Trading Strategies Include Fibonacci Numbers
share on:
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE