Yes, the market just hit 14000. But when you dig a little deeper—when you pop the hood and see what’s underneath the new record-setting highs of the Dow and the S&P 500—you get a much different view.

Now, I don’t mean to scare you, but facts are facts. And I trade on facts—not smoke screens. I keep my eye on the indicators—the economic bellwethers of our economy—to tell me what stocks to buy and what clunkers to sell now before our profits go up in smoke!

Here’s what I see when I pop the hood:

• The American economy is slowing: According  to the U.S. Department of Commerce, the economy grew only 1.3% in the first quarter. That’s the slowest pace in 4 years.
• The dollar is falling: Our almighty dollar hit its lowest level against all other major currencies since the Federal Reserve began keeping records in 1971. That’s a little more than 36 years!
• Inflation is rising:  In March, the cost for importing consumer goods was the highest it’s been in 11 years. Ouch.
• The housing market is plummeting: Home prices are still falling in every part of the country. The supply of homes on the market is 17% higher than a year ago. Foreclosures recently surged more than 47%.
• Foreign markets are blowing past the U.S. stock market: Yes—you heard me. The S&P 500 is up 5.3% so far this year. But the United States lags far behind overseas markets, where Brazil’s index is up 21%, Germany is up 19%, South Korea is up 22% and China is up 99%. We don’t even come close!
• Rising inflation: Plummeting home prices.  A weakening dollar.  A slower economy.  Robust foreign markets.  Higher-priced goods. 

Rising inflation. Plummeting home prices. A weakening dollar. A slower economy. Robust foreign markets. High-priced goods.

When it all adds up, I see smoke coming out of the engine. Now, if this makes you a little uneasy (and it should) then you’ll want to read my latest report, Stocks to Avoid in 2007 and 3 Stocks to Buy. In it, I uncover the 5 sectors that could really disappoint investors over the course of the year and the 30 stocks to ditch in order to protect the gains you’ve already made.

5 Sectors to Avoid at All Costs

What’s I’ve come to realize in my 20+ years of analyzing stocks, is that the toss pile can be extremely valuable to investors. Why? Because owning any of these positions could be hurting your profits instead of helping you make money.

Now, I’m not so bold as to say that some of these industries and the stocks that I single out in them couldn’t go up over time, but my research indicates that these positions will significantly underperform the market.

So, instead of shooting yourself in the foot, you’ll want to sell out of these 5 sectors before their stock market leaders sink your portfolio! And if you’re even remotely considering buying into any of these sectors, do me a favor: Don’t even think about it! Here’s why:

Sector #1 has simply stopped dead in its tracks.  As home foreclosures have skyrocketed, many large developments in the Southeast sit empty, and in formerly hot markets like the Florida Gulf Coast and California, “For Sale” signs stretch from sea to shining sea. Don’t expect a recovery for at least nine months to a year at best—and whatever you do, avoid the 10 top public companies in this industry! 

Sector #2 has an excess of factory capacity and few sales leads.  Let me give you a big clue here: If your whole business is built around making the pieces that hold houses together, and houses aren’t being built, you have a major problem. Now, with capitalism being the efficient system that it is, many of these companies will be clever enough to figure out how to survive… eventually. Expected recovery time: six months to a year. Avoid these top 10 stocks for the time being. 

Sector #3 will lag for a long time because of mounting lawsuits, reputation injury, a shortage of new revenue sources and more. Need I say more? Probably not. But what will surprise you are the big-name banks that you’ll want to avoid like the plague.

Sector #4 is a “perfect storm” of danger: It’s a highly-competitive industry, requiring major capital investments and producing only low profit margins. In the best of times, this sector has made a lot of money by growing their square footage across the country, expanding value-added services and gaining market share with price-oriented promotions. That’s all fine and dandy except when you take a step back and see the forest for the trees: This industry lives and dies on the ability of consumer electronics manufacturers to create the hot products that keep consumers coming back.  I name 2 well-known companies you’ll want to avoid at all costs.  

Sector #5 has high overhead costs, declining sales volume and fierce competition from cost-cutting rivals. I have the 3 companies that you need to dump now.  

Don’t Panic… Be Prepared

Get the names of these 5 industries and the 30 stock market leaders set to bring them down so you can be prepared for the free-fall! In fact, they could quickly sink your portfolio and wipe out all of your gains for the entire year, or worse, your gains for the past several years. Don’t let this happen. Get the names and the details in Stocks to Avoid in 2007.

If you own one or more of the companies that I talk about in Stocks to Avoid in 2007—sell now, but don’t panic. Simply move out of these holdings and into stocks in my Strategic Advantage positions—stocks that since 1991, have racked up returns of more than 26% in my Core Select List, including select companies that pay handsome dividends.

All you have to do is accept a RISK-FREE trial subscription to Strategic Advantage. Jon’s time-proven investing expertise has beaten the S&P 500 by more than $9-to-$1 over the past 16 years.  Find out what you have been missing!