Making Money Alert
The Global Bear Roars
12/14/2011
It’s ugly out there, and it has been for the past week. Stocks around the globe are plunging, as the situation in Europe keeps putting pressure on worldwide equity prices. Fear and anxiety over the lack of any substantive plan from European leaders to effectively do more than put a band-aid on a burn victim has caused the euro to plunge, and bond yields in the region to surge. The decline in the euro also has prompted gains in the U.S. dollar, and the dollar’s surge has caused a big sell-off in the commodities space. Gold, silver and oil prices all plunged in Wednesday’s trading. Along with the decline in stocks around the world, we’re now hearing the bear roar load and clear.
If you’ve been a reader of the Alert since mid-October, you know that I’ve been discussing how to survive the next bear market. If you’re feeling squeamish about this market right now, and who isn’t, I recommend going back and reading each installment of this five-part series on bear market survival. It could save you a lot of anxiety, as well as a lot of money.
As you can see by the chart here of the iShares Europe 350 (IEV), European stocks have now broken down below their 50-day moving average. The broad measure of the biggest stocks in Europe had long since fallen below its 200-day moving average. A late-November rally, fueled by expectations of a comprehensive bailout, gave way to pessimism. As a result, it looks like we’re going to retest the most-recent lows.
The way I see it, Europe is fraught with too many problems. Those problems are going to require much more than just a few modest austerity measures and a strategic bailout to the most fiscally challenged European Union members. The fact is there’s still no credible plan being put forward to solve the European debt crisis, and that means the region’s problems will continue to keep stocks tied to Europe ’s fortunes in the doldrums.
Moreover, I see the real possibility of a recession in Europe spreading throughout the world, and that will have a pernicious effect on markets in nearly every corner of the globe.
Already, we see that emerging markets have descended back into bear market status. The chart above of the iShares MSCI Emerging Markets (EEM) clearly shows the renewed pressure the segment has come under in December. Here too, we could see a retest of the November lows, and possibly even the October lows, before the year is out.
As for domestic markets, the S&P 500 Index has yet to fall back into a bear market; however, after today’s big selling, the broad measure of U.S.
This latest decline puts the so-called Santa Claus rally thesis into jeopardy. It also puts the S&P 500 down about 3.4% year-to-date. In a year plagued with such extreme volatility, it shouldn’t come as much of a surprise that stocks would finish up 2011 with a flurry.
Now, I am not discounting the possibility of a rally to finish out the year. This market has proven that as soon as the bears take center stage, the bulls are quick to come out of the wings. Still, I think the overwhelming body of evidence confronting us right now suggests that the bear is in the driver’s seat as we roll into 2012.
What this means is that you are going to be best served with a defensive posture that includes very low exposure to the equity markets. It also means that you have a chance to take advantage of strategic buying opportunities caused by the dislocation in places like
Right now in my ETF Trader advisory service, we are profiting from the decline in both Europe and commodities. If you’d like to find out how you can get on the right side of this trade, then I invite you to check out the service today.