Making Money Alert: How to Lose $500 Billion in Three Days

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Quick question: How do you lose $500 billion in market value in just three days? Well, the answer is you have a plethora of high-profile industrial giants either missing top- and bottom-line earnings estimates, and/or offering up disappointing guidance for Q4 and beyond.

The bevy of earnings bombs since Friday from the likes of 3M (MMM), Caterpillar (CAT), DuPont (DD), General Electric (GE), Google (GOOG), McDonald’s (MCD), United Technologies (UTX) and United Parcel Service (UPS) teamed up to cause the major indices to get hammered. That selling is estimated to have slashed about $500 billion in market value since last week.

The benchmark measure of the market, the Dow Jones Industrial Average, now has fallen about 4% below its most-recent high, a measure it hit just prior to the onset of earnings season.

The chart here of the 30 stocks in the Industrial Average shows that it now has broken below support at the 50-day moving average (blue line). That’s a big warning sign for the markets, and it shows the power of poor earnings.

This also shows me that the Federal Reserve has put all of its cards on the table with respect to “QE Infinity,” and the market has returned to trading on fundamentals. So far, those fundamentals haven’t been good.

Perhaps even more bearish is the move we’ve seen of late in several bellwether tech stocks. Here I am talking about Apple (AAPL), Amazon.com (AMZN) and the aforementioned Google, which all are down considerably from their most-recent highs. These tech giants need to move higher to sustain any bull market run. If they keep faltering, look for stocks to have a tough time moving higher.

The chart here of the PowerShares QQQ Trust (QQQ), a proxy for the NASDAQ 100 Index, shows the much bigger plunge in big-cap tech stocks than even the plunge in Dow stocks. This decline in what has been a very strong sector this year is a big canary in the coal mine, and it could be signaling the end of the bullish bias we’ve seen since June.

In light of what’s happened during the past several days, I highly recommend you proceed with caution before wading into these market waters. If you are long stocks right now, and if you have nice gains, then now might be a very good time to think about banking some profits. If you are in cash and have been waiting for the next buying opportunity, then get ready. It just might be right around the corner.

The Wisdom of Wallace

“There’s a difference between us. You think the people of this country exist to provide you with position. I think your position exists to provide those people with freedom. And I go to make sure that they have it.”

–William Wallace

The great Scottish freedom fighter knew the proper role of political leadership in society, and he fought to make that happen during his pugnacious lifetime. I want you to remember his words when you go to the polls on Nov. 6.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

To the best within us,

Doug Fabian