Market Rally Turns to a Sell-Off

The early market rally was driven by good news (well at least it was perceived as good news) out of Europe and a better than expected weekly jobs number. The early rally began to subside within 20 minutes of the opening bell and struggled the remainder of the session. With the S&P 500 deep in the red with an hour left in trading (-0.8%), it appears the market will continue its swoon into Friday.

Even though the S&P 500 has remained within its trading range it has been forming over the last 2 months, the action has been far from bullish. I am not liking the late-day selling and it appears the news out of Europe is not what investors are looking for to calm their fears. Therefore I believe lower prices are ahead in the short-term. However, if looking out 6 to 12 months I do believe the market will be substantially higher.

So the strategy now is to hedge any future short-term weakness with increasing cash positions and/or investments that do well in market sell-offs. There are Inverse ETFs, shorting stocks, bonds, currencies, and defensive sector ETFs.

We will be sending an Important Update to our clients and subscribers tonight with more detail of our plan going forward.

On Fox Business at 5:30ET

Catch me tonight on the Fox Business Network at 5:30ET on the "Willis Report" taking about a bevy on topics that range from greeting cards for the unemployed to the government telling us what we can and cannot eat!!

ETF to Hedge More Weakness

The late afternoon action in the market is sending the $SPY to the lows of the session and I do not like the short-term action. This has led me to consider adding a new ETF to my client's portfolios in the next two days to hedge against further weakness in equities.

The AdvisorShares Active Bear ETF ($HDGE) is an actively managed ETF that shorts stocks and other ETFs based on proprietary research. Since 4/29/11 the $SPY is down 15.5% and $HDGE is up 26%.

To look at it from a different perspective, $HDGE was down 13% from 1/27/11 through 5/12/11. The ETF began trading on 1/27/11. During that same time frame the $SPY was up 4%.

What this tells me is that when you are right in the trend call $HDGE will do you good. If you are wrong the ETF will likely under perform dramatically.

What if the trend remains in the trading range that I highlighted earlier today?? Since 8/18/11 the $SPY is up 0.5% and $HDGE is down 0.4%. Non-movement from both.

If you agree there could be more downside and would like to hedge a portfolio with equity exposure then $HDGE could be an option. But definitely not a long-term investment.

Some facts: the expense ratio is a high 1.85%, as of yesterday its top short positions were $CTCT, $MHK, $MDSO, $KITD, and $FOSL. Also, it trades about 200,000 shares per day on average.

ALSO - PFG currently does not have a position in $HDGE

The Next Market Move

The market is essentially flat as we enter the lunchtime hour. Not only is there no direction today, but when analyzing the chart of the S&P 500 it is clear the index is in the middle of a trading range. The green lines on the chart show the support near 1120 and resistance between 1230 and 1250. The resistance area is the old support level.

The big question is where does the market go next and unfortunately the chart does not give any clear indication. What it does tell us is that for the near-term we should expect stocks to continue to trade within the current range.

Investors should hold steady today and I will revisit the action in the coming days to try and shed some light on the next trend. Right now the market is trendless.

Market Recap - Fading Rally

If the closing bell rang at 2:15 today instead of 4:00 it would have been one of best days in weeks. But unfortunately for the bulls the bell still rings at 4pm. When all was said and done the S&P 500 was up a mere 11 points or 1.0%. The Dow hung on for a gain of 150 points or 1.4%. Not bad gains, but considering the Dow was up 326 points with 2 hours left it trading it is concerning.

Late day sell-offs are never a good sign for the market. There was no clear-cut reason for the sell-off other than traders booking profits and some confusing comments regarding a possible Greek bailout.

My other Thoughts of the Day.

• This falls under the Amusing Headline of the Day category: The has-been banking analyst, turned muni bond analyst, back to wannabe banking analyst Meredith Whitney dramatically lowered her earnings estimates for several big name financials. The likes of $JPM, $GS, $MS all had their estimates slashed by the "hack" and could have fueled some of the selling. Sure, she was sorta right on her banking call in 2008, BUT does anyone remember her muni bond call about a year ago?? One of the WORST CALLS in history of big-mouth market calls in my opinion. You can find my thoughts about the call last year in the WSJ, NY Times, etc. Anyway, we do we care what she says anymore. She clearly likes headlines - but what about making prudent estimates?

• Today was a "Loser Rally" for the Dow. The top 5 gainers today in the index all hit or were near 52-week lows in the last week. The were: $HPQ, $DIS, $CAT, $DD, $TRV. Every dog has it's day in the sun. On the flip side, it was a bullish indicator that all 30 Dow stocks closed up at least 0.7% on the day. In case anyone cares the Top 2 stocks on the Dow this year are $IBM and $MCD.

• A niche area that looks interesting today is the Grain Commodities. The iPath Grains ETN ($JJG) has strong support at $46 and closed today at $46.93. I am keeping a close eye on the action the remainder of the week. I love the ags long-term. Also, a NEW ETF Alert: Teucrium Soybeans ETF ($SOYB) and Teucrium Wheat ETF ($WEAT) began trading last week. They join the Teucrium Corn ETF ($CORN). All three grains make up $JJG.
  

Making Money in a Frustrating Market

I have to say I really feel for the self-directed investors out there trying to invest their hard-earned money on their own. Having my head in tune to the market nearly 24-hours per day and I still find the recent environment difficult and extremely frustrating.

BUT, I will say when you cancel out all the noise in the media, online, and from colleagues it is not as difficult. Let me explain what I am talking about. Just last week the talks of a massive recession or even depression were the top stories. Whether you had $5000 in an IRA or you managed billions of dollars - the end of the stock market was near.

Just a few days later and suddenly the news is rosy. Instead of global growth falling dramatically, today the story was that global demand for goods is up and the shipping stocks are surging ($EXM $FRO $EGLE etc.). That is one heck of a change of heart in less than a week.

WHAT INVESTORS MUST REALIZE is that the short-term noise that is currently ruling this market is simply that - NOISE. Unless your time horizon is less than 3 years, you need to look at the big picture. (FYI - If your time horizon is less than 3 years you should not be in stocks.)

As I have said for year and will continue to drill into you head - DO NOT MAKE LONG-TERM INVESTMENT DECISIONS BASED ON SHORT-TERM FACTORS.

IF you can do this, you will be a very successful long-term investor. You may look a fool in the short-term, but it is not the battle you are looking to win - it is the WAR!!

My two cents for you today from Psychologist McCall -- HA!

Semi equipment company Applied Materials ($AMAT) continues to hold support at the $10 area, which has proved to be a buy zone over the last 2 years.

A buy in the $10-$11 area gives investors $1 of risk with upside potential of $5. The 5-to-1 setup along with a 3% annual dividend makes AMAT an attractive buy this week.

** We do not currently own shares of AMAT.

Investing in Beauty

Stocks that help you look young, stay young, or enhance you body to appear younger have been on a tear for a couple years. Even more impressive has been the way they have help up during the market pullback.

It all makes sense and goes along with one of the chapters in my book: "The Next Great Bull Market" (available on Amazon.com)

http://www.amazon.com/Next-Great-Bull-Market-Winning/dp/0470440899/ref=sr_1_1?s=books&ie=UTF8&qid=1317129706&sr=1-1

The stocks I am referring to include:

1. Nu Skin Enterprises ($NUS) - Maker of anti-aging cream.
2. Allergan (AGN) - Think Botox and breast implants.
3. Elizabeth Arden (RDEN) - Cosmetics.
4. Estee Lauder Companies (EL) - Cosmetics.

**PFG owns shares of NUS.

Daily Recap

McCall's Call

Today I will list some random thoughts I had throughout the first trading day of the week.

· A large number of upgrades today for stocks in a variety of sectors. Are the analysts finally starting to see value in this market? I sure as heck see value in this market and if you have a 3-5 year timeframe – there are some big-time bargains out there!!

· The rally has the $SPY within 50 cents of closing the gap left by Thursday’s big gap down on the open. It is not rare to see a chart in which a gap is filled before the ETF reverses in the direction of the gap. In this case it was a big gap down. Therefore we need to watch the action into mid-week to see if the top of the gap proves to be resistance. The level to watch on the $SPY is $116.50.

· The precious metal slump continues, however both gold and silver were able to rally well off the lows hit last night. Silver was down nearly 10% at one point in overnight trading. The contract closed near breakeven. Copper, which has also taken a beating was able to rally all the way back into positive territory. ETFs to watch $SLV $GLD $JJC

· Stocks in the news: Apple ($AAPL) was down as much as $17 during the session after reports surfaced that the company is ordering less parts for their iPad 2 device. Throughout the day there have been firms coming out and defending Apple. Is it due to their new Brazil supplier contract? Maybe the iPad 3? Either way, investors used the weakness as an opportunity to buy as Apple rallied to close down less than $2.

• Retailers Strong today with SPDR S&P Retail ETF ($XRT) up 3.4%. Limited Brands ($LTD) closed within 1% of a new all-time high. Other retailers within striking distance of new all-time highs include: TJX Companies ($TJX), Costco Wholesale ($COST), Amazon.com ($AMZN), and Ross Stores ($ROST).

A Favorite Energy Stocks Looking Good

One of our favorite energy plays, Core Laboratories (CLB) is forming a bullish double-bottom today at the $98 support level. More follow-through on the upside tomorrow will be very positive for the stock.

We currently own shares of CLB for several clients.

Monday's with Matty

Catch my weekly market segment on Fox News Live at 1pm ET with Tracy Byrnes.

This week I talk about the continuing issues in Europe as well as economic numbers in the US.

I will also look at the action of the market this morning and what to expect for the week AND of course 3 stock/ETF Ideas!!

Go to www.foxnews.com to watch live.

Europe Banks Set to Rally

After a bit of positive (or more like the lack of negative news), shares in Europe are rallying on Monday. The move higher is led by the financials, which have been the cause of the drubbing the region has taken.

If you are feeling a bit aggressive this morning and feel the rally will continue there is an ETF made just for you - the iShares MSCI Europe Financials ETF (EUFN).

If you prefer to simply build a new position in the region I would suggest the Vanguard European ETF (VGK) with a dividend yield of 5%.

Personally I think it may be a little early for both ETFs as long-term investments.

Stocks Find a Bottom and Gold Capitulates

Even as the news remains negative and we head into a weekend, stocks are holding onto modest gains of 0.5% with 30 minutes left in the week.

My gut feeling when the market was down 2% this morning was that we hit an intermediate-term low as the capitulation soared. I felt the same way in regards to gold mid-day and sent out a Tweet from @MatthewMcCall that a buy at $159.25 on GLD was a good strategy. GLD continues to trade near the $160 level heading into the close. This looks like a good price to add to a position or begin building a position.

Another longer update this weekend.

Email info@pennfinancialgroup.com to be added to our FREE Email Alert list.

Matt McCall

Video of CNN Interview on 9/23/11

Link to my interview on CNN this morning regarding the market sell-off.

http://cnn.com/video/?/video/bestoftv/2011/09/23/am-matt-mccall-markets.cnn

Market Bottom??

My gut feeling was telling me the market hit a short-term bottom this morning when futures were down about 2%. I am not ready to start throwing money back into stocks, but I will watch the action closely heading into the weekend to see if I am right.

Keep in mind the rumbling in my gut may be the Mexican food from last night - but typically my gut calls are the most accurate.

Watch support on the S&P 500 at 1101.