Fear of a Market Meltdown
It wouldn’t be fair to paint a picture of nothing but optimism. One of the growing trends across October and the first week of November has been the increase in bearish commentary among financial pundits.
- Anthony Mirhaydari says the technicals don’t look good for the market right now as breadth declines and downside pressure increases.
- Larry McMillan said the market is overbought based on put/call ratios favoring sellers, not buyers.
- Societe Generale called for a 15% correction in the stock market in the first quarter of 2014.
The list of bears goes on — notably with the dozens who continue to voice fears that a December “taper” by the Federal Reserve could take the momentum out of the market.
You can understand the perspective of the bears even if you don’t agree with it. Corporate profits are slowing, revenue growth is hard to come by and it’s undeniable that the Federal Reserve’s easy money policies have boosted the market — and a significant drawdown in stimulus could rattle traders.
So whatever trades you consider making in November, keep in mind that the bullishness around the Twitter IPO might not translate broadly to the market.
If you want to trade a selloff, consider taking partial profits in some of your big winners — or even playing the downside with an inverse ETF like the ProShares Short Dow 30 ETF (DOG).
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he had no positions in the stocks mentioned. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.