Stocks turned mixed yesterday, with the broader list acting somewhat better than the Dow’s skimpy 21-point gain would suggest. After Monday’s surge (attributable to the fact that Hurricane Irene turned out “less bad” than many had feared), some backing and filling was to be expected. It’s encouraging, though, that even an awful report yesterday morning on consumer confidence couldn’t keep the market down.
This resilience, coupled with the positive tendency around the month’s end, suggests we’ve got room for some more gains during the next few sessions. However, it won’t be a straight shot upward from there.
Chances are, the market will spend much of September — and possibly part of October — whipping back and forth as investors try to figure out whether the economic slowdown on both sides of the Atlantic is going to pass (or turn into something worse). For the next six weeks or so, I see the S&P 500 facing strong overhead resistance in the 1250 area, where the August breakdown occurred.
If we’re lucky, the S&P won’t undercut its Aug. 9 intraday low of 1,101. But I can’t rule out a brief “fakeout” dip below that level as part of the longer-term bottoming process. A bear trap, as technicians call it, has featured in many other important market bottoms of the past (2008, 2002, 1998, 1990, 1987, etc.).
In short, we’re in a trading range for now, bounded roughly by 1,100 and 1,250 on the S&P. What does that mean for your investment strategy?
At the moment, we’re closer to the top of the range than the bottom. So it’s time to watch your head. You don’t want to get bonked by a big oak beam just above you.
Start making up a list of stocks and mutual funds you intend to sell if the market nudges a bit higher. It doesn’t have to be an extensive list yet; we’ll probably be paring our equity exposure in steps over a period of several months. But you should get started.
I’ll be looking to sell Philips Electronics (NYSE:PHG) if the shares bounce back to $21.30 or more. PHG has turned in a series of disappointing earnings reports lately, and it’s the kind of business we wouldn’t want to own if another recession were to strike within the next few calendar quarters.
Should PHG reach our target, we’ll lower our stake in World-Class Franchises by 1%. We’ll switch the same amount to Weitz Short-Intermediate Income Fund (MUTF:WEFIX).
WEFIX is a good, safe vehicle for your spare cash. The fund’s share price does fluctuate, but much less than longer-maturity bond funds. Current yield: 2.4%. Minimum to open an account: $2,500. Available through leading discount brokers. Pay up to $12.50.
P.S.: Gold looks poised to challenge last week’s record highs very soon. Resist the temptation to trade out of Barrick Gold (NYSE:ABX), one of our star performers recently, unless you absolutely need the cash. I’m projecting that ABX will run up to the $54-$55 zone during September. Buy on pullbacks to $49 or less.
