What The Market Wants: Things Aren’t As Bad As They Look, Yet

Yesterday, the market continued its tortuous path of the last two weeks, falling sharply virtually the entire day with the DJI ending down 326 points, the S&P 500 down 2.3% (it’s worst day since June 20, 2013), and the NASDAQ down 2.6%.  We are now down about 6% from the S&P 500’s high on January 15.  A drop of 10% is generally thought of as correction, so we have another 4% or so to fall. 

But what are the factors that will make this worse than a correction?  That’s hard to know.  It’s true the yen has taken a real bath and many folks were betting on the opposite.  That’s to say many big folks, but not the regular investor. They may not be buying much for a few days as they lick their wounds. 

But is that where it really counts?  Economic reports and corporate reports in January were not all bad.  There were a few disappointments, but there were many more positive surprises than negative.  Go look at your favorite list of indicators and stock reports so far in 2014.  The good outweighs the bad.  At least look and decide for yourself. 

There is a good chance the fall may indeed hit 10%, but by that point there should be some very compelling buys in a market of stocks that are loaded with cash and slowly returning to even revenue growth.  Check the market stats for the past month.  Revenue gains have outnumbered shortfalls.  In our opinion, this is a good time for stock picking.  Sure, they probably go lower, but you never know exactly where the bottom is.  It is good time for gradually taking positions in undervalued growth stocks and building a portfolio ripe for harvesting during the recovery as growth continues to take hold.

As we cautioned last week, it is also good time to hedge with VIX related positions. ETFs like VXX and other options on the VIX itself, can provide good protection in uncertainty. That paid off this past week and should do well again until the slump ends. 

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The author has no positions in stocks or ETFs mentioned. The materials available from us are published solely for informational purposes. They are not to be construed as advice or recommendations.

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