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It's Time to Get Defensive on Stocks and the Global Economy


These charts help explain why it's time to get short (or hedged) for a sizeable downside correction.

They say a picture is worth a thousand words -- and probably worth 10,000 of my words -- hence I'll only say a few of them. It appears smart money is ready to start discounting a global economic slowdown based on the charts displayed below. As you might know, the market prices in today what is expected six to nine months down the road. Seeing economically sensitive sectors top out and roll over like today, I get incredibly nervous. Let's look at some charts to understand why it's time to get short (or hedged) for a sizeable downside correction.

Let's start with China. It looks like this global economic juggernaut has topped out and is ready to head south.

iShares FTSE China 25 (FXI)

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ProShares Ultrashort FTSE China 25

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Next let's look at the economically sensitive steel sector (Dow Jones US Steel (^DJUSST))

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And the non-ferrous metals sector (Dow Jones US Non-Ferrous (^DJUSNF)) is also rolling over. Another bad sign for the global ecoconomy:

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And the rails are rolling over, too. This sector started down as the Dow Jones Industrial Average was hitting new 52-week highs on February 29 (Dow Theory sell signal).

Dow Jones US Railroads (^DJUSRR)

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And finally, look at the Russell 2000 (mini Russell 2000 continuous contract). The Russell is filled with small companies doing the majority of their business in the US. This tells me it's time to buckle up as the downside correction in US stocks is finally upon us.

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Let the games (pain) begin.

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No positions in stocks mentioned.
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