Editor's Note: This article was originally published at 9:15 a.m. EDT on Real Money Pro on Sept. 25. Sign up for a free trial of Real Money.
The market is extended and the divergences I have focused on since early August are growing more conspicuous.
The weakness in the eurozone is beginning to affect European aggregate economic growth, and if this weakness accelerates, watch for systemic risks in the European banking system.
Maintain above-average cash reserves, be diversified across company and sector exposure, and avoid most overvalued social media stocks that have benefited from sponsorship by momentum-based investors.
I have learned that most strategists, money managers and letter writers welcome the safe haven of the crowd. As long as prices rise, they remain bullish. But those same groups will "turn" on the markets and become defensive if prices continue to drop, leaving retail investors in the lurch.
As well, examine the reward vs. risk in your individual stock holdings, and if the ratio is unattractive (or neutral), peel some off and take gains.
My most-preferred asset class remains closed-end municipal bond funds. I have numerous new investment ideas that have been the outgrowth of my research over the last few months, but I will only discuss them upon a broader retreat in the markets."
-- "Daily Diary," September 23, 2014
Futures have rebounded modestly from the last minute schmeissing on Tuesday (S&P 500 futures are +5 and Nasdaq futures have risen by 12 handles). As I mentioned earlier this week, a potential "dead-cat bounce" could occur in the mid- to late part of this week; however, it remains my view that we have seen "The Ali Blah Bah Top" (i.e., a top around the Alibaba (BABA) initial public offering) and, tactically, I plan to short that bounce.