THE BLOG
05/10/2010 01:50 pm ET Updated May 25, 2011

The Time To Sell All Stocks?

The announcement of the $1 trillion Euro or $955 billion European rescue package (which sent equity prices flying) aside, watch out for the U.S. stock market because it's still in hot water. No, make that boiling water. The reason: A lot of technical damage was done to the market last Thursday when the Dow Industrial plunged nearly 1,000 points during a frantic and frightening trading session.

I was alerted to this sorry turn of events by Carter Braxton Worth, Oppenheimer & Co.s well-regarded chief market technician, when I rang him up to get his reaction to the recent devastation .

In addition, he tells me that three of the biggest names in Corporate America -- all industry leaders with big Wall Street followings -- have turned into stock market deadbeats. They are media giant Google, investment banking biggie Goldman Sachs and Freeport McMoRan Copper and Gold, the country's largest copper producer.

Worth says the three stocks -- each of which has been weak for several months -- have all rolled over and could go appreciably lower. "They're damaged and I would sell all three," he says.

As for Thursday's market dive, Worth, who suggests the stage has been set for more bloodletting, stresses that Thursday's decline was not your garden variety selling. "A lot of technical damage has been done that portends long term weakness for the market," he says. In a period of market weakness, he points out, you either take advantage of it or stay away from it. At this point, he opts for the latter. Actually, he takes it one step further, asserting "I would sell the U.S. market because there's minimal rebound potential."

One reason, he points out, is the likely avoidance of U.S. equity mutual funds on the part of shell-shocked retail investors. He notes that investors shunned these funds all year until about six weeks ago. Thursday's bloodbath, Worth thinks, is assurance that further fresh fund inflows--a catalyst for higher stock prices--won't be forthcoming.

On a related matter, our technical expert--who sees the U.S. market wrapping up the year about where it is now-- says he would also shun the Chinese market (as reflected in the Shanghai composite index), which has been going down for about nine months. In this context, he notes, a Chinese exchange-traded fund, traded under the symbol EFI, is also rolling over. The same bad news, he adds, also applies to Banco Santander SA, Spain's largest bank.

Meanwhile, the mystery goes on as to the basis of Thursday afternoon's savage and speedy selloff that in less than 10 minutes wiped out $700 billion of market value. Some blamed it on a computer glitch, but Worth says that's ridiculous. No one, he notes, ever raises the issue of a computer glitch when the market moves strongly to the upside. Why not?

Worth, by the way, doesn't see any mystery to the sudden crash. His view: "Wall Street is a confidence game, and on Thursday for an hour or two there was zero confidence and no buyers."

Noteworthy to one trader was a follow-up decline on Friday when the Dow fell nearly another 140 points despite super tidings on the jobs front -- the disclosure that 290,000 new jobs were created in April, the fourth consecutive month of job creations. "In view of what happened the day before, the U.S. market should have had a strong triple-digit rally on Friday, not a triple-digit decline," says the trader who describes that drop as alarming and "an ominous warning that more hell lies ahead."

Addressing himself to Thursday's decline, he says "for a moment there I thought the U.S. market was at death's door. What else are you supposed to think when you see a $41 stock drop to a penny a share in just one afternoon?" That's a reference to Accenture, a technology consulting company, whose shares went into an unbelievable tailspin Thursday afternoon and then rebounded that day to close at $41.09.

Granted, everyone knows the economy is perking up, ditto corporate earnings and that the jobs picture is brightening, but the market's recent ugly showing -- characterized by a resumption of those brutal single day triple-digit Dow losses and rising volatility -- is clearly flashing an S.O.S.

In recent weeks, for example, we saw a string of those nasty triple-digit daily Dow declines, which produced point losses of 213, 158, 225, 347 and 139 for a total decline of 1,182 points. This past week, the Dow tumbled more than 600 points. These tumbles are not what bull markets are all about.

Sovereign debt worries related to Greece, have been widely blamed for much of the recent declines. But is that all there is to it? Or is something more perilous lurking? Some market pros think so.

One is a money manager who thinks the core of the market's problem is no longer just related to the growing concern about the financial stability of Greece, but rather to the overall PIIGS in general (Portugal, Ireland, Italy, Greece and Spain). "It's a crisis that looks like it could get a great deal worse before it gets better," he says.

Like a number of market pros, this manager is convinced the European debt problem will continue to plague the U.S. and global markets. "I could see Germany (the strongest member of the European Union) bailing out Greece, but not the other financial weaklings, as well," he says. As a real danger, he sees a round of fresh downgrades from the credit agencies, which he predicts is apt to inflict even more damage on the world markets.

Rick Eakle, formerly Morgan Stanley's chief technical strategist, told me in early April he thought the market could soon be vulnerable to a one-day market decline of 10%. He was right on. In Thursday's skidding session when the Dow was down nearly 1,000 points, that represented a drop of around 9.5%.

So what's next? More market losses, says Eakle, who sees at least another 5%-6% decline. Thursday's plunge was a wakeup call, a sign the trend has changed," he says. One reason for his bearish outlook: he also expects spreading sovereign debt problems, which he sees impacting both Spain and Turkey.

What about the flock of better than expected earnings? Isn't that a positive? That's already reflected in the market, Eakle says. Another sore point, as he sees it: with the financials faltering, there's a lack of market leadership and no successor on the horizon. Growing unrest with the Obama administration is viewed by Eakle as yet another market negative.

In a fine bit of market timing, Caise Hassan, a Huffpost reader in Amman, Jordan, who actively trades the U.S. markets, was fortunate to have closed out his long stock positions a couple of weeks ago. In an e-mail, he noted he was now short (a bet on lower prices) the currencies of economies dependent on mining and oil, namely Australian and Canadian. At the same time, he's a buyer of Swiss francs and the yen. For summer, Hassan thinks the best buys are agricultural commodities, mainly corn now and wheat and sugar in June and July. Sugar is currently selling at its lower level in 40 years.

Because of stock market worries, many U.S. investors have opted for the safety of the bond market, which has been strong the past three weeks. Hassan views it as a bad bet, noting he can't see how any bond rally can be sustained, given our exploding debt and deficit.

For those investors who crave some sort of stock market participation, Hassan's best bets are stocks that trend well during the May-September doldrums, such as utilities and pasta. Here, he favors South Jersey Industries, Nicor and American Italian Pasta.

As for longer term investing, Hassan doesn't like what he sees right now. As such, he thinks it's best to wait till 2012-2014 to make a commitment. In other words, it's the wrong time to bet the farm on stocks.

What do you think? E-mail me at :Dandordan@aol.com.