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Heed the Signs, Take Your Foot Off the Gas

Be patient, and reap the reward with bargain prices to come


I know you’re itching to step on the accelerator and buy more stocks right now. But as your old Driver’s Ed instructor, I can tell you I’ve been over this road many times, and you’ll get a chance to buy everything you want soon enough — and at significantly lower prices than today’s overbought situation.

Just wait for the turn ahead. We’re almost there.

It always fascinates me how, after the market has climbed for several months, people find it difficult to take this advice. Yellow “caution” signs are popping up all along the highway — from big, obvious warnings like last week’s crummy jobs report to the more subtle technical indicators (the latest being a sharp loss of strength, since late March, among small- and midcap stocks).

Even though these things have, through the years, reliably foreshadowed market pullbacks, investors allow themselves to be seduced by the hope that “this time is different.”

It probably isn’t.

At the next good buying juncture, the corporate insiders will stop dumping their companies’ stock like King George’s tea into Boston Harbor. (According to Vickers, the insider sell-buy ratio for the past eight weeks remains stuck at a horrific 6:1, the longest bout of such urgent selling since December 2004.)

In fact, if past is prologue, the insiders will even tip us off on what to buy, because they’ll be buying, too. At lower prices, of course, while the Cramers of the world cringe in a corner!

Until we see a bigger crack in equities than we’ve had so far, I’m more inclined to put new money to work in bonds. A good hedge against the coming equity “correction” is the iShares Barclays 20+ Treasury Bond Fund (NYSE:TLT). This exchange-traded fund carries U.S. Treasuries with a remaining maturity of greater than 20 years, and currently yields 2.6%.

From last month’s low, Treasury bonds have jumped nearly 6%, despite just a flattening of the stock market’s uptrend. Hang on to TLT if you own it already, and tuck away some more on dips to $117 or less.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk “value” approach has won seven “Best Financial Advisory” awards from the Newsletter and Electronic Publishers Foundation.

Article printed from InvestorPlace Media,

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