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Doug Kass: Aha Moment Has Arrived for Stock Investors

If you've been looking for some kind of defining market 'tell', strategic investor Doug Kass says look no further. It arrived in the form of Wednesday sharp reversal.

As you may know, Wednesday was a nasty day on Wall Street; by the close the S&P recorded its worst 1-day decline since August.

In fact, all 10 Standard & Poor's sectors ended more than 1 percent lower with banks the worst of the bunch. Also, all 30 stocks in the Dow industrials closed in negative territory.

Of course this isn’t the first time that the market has looked like it was on the verge of something serious – in fact, it tends to happen somewhat regularly. And each time the market has reversed back to the upside.

But Kass thinks this time will be different. He points to “the obliteration of a week of gains in only 3 hours of trading” as a very telling development.

The reversal was “a blow to the groin of a largely bullish investment community that has been convinced that a smooth and a self- sustaining economic recovery was in place,” says the Seabreeze president and CNBC contributor.

In other words, he thinks the breath and magnitude of the selling on Wednesday is a sign that the negative catalysts looming over the market are starting to break the bulls.

And there’s are plenty of negative catalysts in the market.

On Wednesday the Street was socked with lousy economic data. For example, the ISM number fell to to its worst level since September 2009 while new data from ADP showed private employers had added a scant few jobs.

And looking at the big picture, Kass has often said weakness in the housing market, along with government intervention in the form of QE and things like screw-flation all pose serious threats to the market.

Well, guess what? According to Kass it’s all all coming home to roost.

Of course the next logical questions is, what happens next? Where are markets ultimately heading?

”Look at the market action between the end of QE1 last year and surprise start of QE2,” Kass says. ”Stocks did poorly especially energy, technology and consumer discretionary. The S&P dropped 12%, the CRB dropped 5%,” he says.

As a results Kass thinks most investors should be under-invested until there’s more economic clarity.”

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And if you’re a more aggressive type, Kass also says, “asset managers look like an interesting areas to short.”


What do you think? We want to know!






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MIke Khouw
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Joe LaVorgna
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CNBC.com with wires.