The Market Is Down! No, It’s Up! What to Do Now?

by Bryan Perry | January 15, 2014 10:48 am

Well, which is it?  Stocks plunged Monday, but then gained back nearly all the lost ground Tuesday.

Is the bull still kicking, or should we be thinking about a “correction” around the corner?

A little of both.  Certainly, there’s a huge element of randomness in Wall Street’s day-to-day swings.  You’ll drive yourself crazy (and empty your wallet) if you try to respond to every volatile up or down session Mr. Market throws at you.

From the standpoint of the primary trend, it’s clear that we’re still in a bull market, dating back to March 2009.  Thus, you should treat the bull as a bull until the evidence shifts decisively to the contrary.

On the other hand, the whippy action of the past few days (together with the extreme bullish sentiment in various polls) is often characteristic of a market approaching a temporary peak.  If the headline indexes were to break out to marginal new highs over the next week or so, without any real improvement in the market’s internals (breadth and momentum), the table would be set for a long-overdue pullback of perhaps 3%-5% into February.

In practical terms, since the major trend is still up, you should continue to think of dips as buying opportunities.  Already, some stocks that underwent their own pullbacks in 2013 are starting to recover.

For example, Asian conglomerate Jardine Matheson (JMHLY[1]) is up 3.7% year to date, despite the soggy Dow.

In addition, several utilities with well-covered dividends offer good value at today’s levels, including BCE (BCE)[2]; Duke Energy (DUK)[3]; and Verizon (VZ)[4].  A package of these three stocks will net you a current yield of 4.7%, well above what you could earn with the longest-dated Treasury bond.  Plus, you can look forward to dividend increases in the months and years ahead!

Again, these names have already undergone significant retracements from their 2013 highs.  Any remaining downside, in the event of a broad-based stock market pullback, would appear to be limited.

When and if the market gives us that “correction” I’ve been talking about, I’m sure MY buy list will lengthen dramatically.  For now, I advise you to pick and nibble.  Don’t gorge.  You’ll have plenty of chances to feast as the year wears on.

 

Endnotes:
  1. JMHLY: http://profitableinvesting.investorplace.com/getaquote/?STOCK_VAR=JMHLY
  2. BCE): http://profitableinvesting.investorplace.com/getaquote/?STOCK_VAR=BCE
  3. DUK): http://profitableinvesting.investorplace.com/getaquote/?STOCK_VAR=DUK
  4. VZ): http://profitableinvesting.investorplace.com/getaquote/?STOCK_VAR=VZ

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