I have suggested for a few weeks that the stock market was prepared to go on sale. My thoughts were to get ready for it, be defensive and get your wish list ready. That is, make a list of the stocks you “wish you bought at lower prices” and get ready to buy them when they are on sale. Many small-cap and mid-cap names are already in full correction mode and are at levels where they should not go much lower in the short term. The large-cap names are now getting hit and fear in the market place has risen. I expect we are not too far from a short-term bottom. Many weak hands will be shaken out of the market, again exactly at the wrong time. If any company pulls back to your wish list price, make sure to buy at least a half position.
Amazingly, there is still a large percentage of investors waiting to get back into the market, even after the 2009 sell-off! They have missed nearly a dozen pullbacks already. The problem is each pullback looks scary and presents another reason why it makes sense to “let the smoke clear.” Then following another new high I hear the “shoulda woulda coulda” nonsense again. From a psychological point of view, the market can drive you crazy–if you let it. It sounds easy to “buy the dips and sell the rips” but most individuals, unfortunately for them, actually do the opposite.
I think it is best to get the names right as the “fair price” for each company is hard to actually determine. When fear is high overall, each company is already back to the “add right here” price. Some traders will look for the stocks that did not participate in the sell-off while others look for the most “over-sold” stocks. I have my list of Magnet® stocks. I look to put new money to work in my highest rated Magnet stocks that have pulled back, and have done so on light volume. Using a set of technical indicators, I like to buy when the selling starts to dry up.
I think we are close to the holiday sale ending. Maybe another 3-5% off the large caps and I think we’ll be there. Maybe some ugly news internationally will get us there fairly quickly. I would use any further light volume selling in your wish list names to start adding/buying. I think it is also a good time to buy/add a little gold in your portfolio. Remember everyone rushing into gold at $1,900/oz.? At $1,200/oz. they are now waiting for gold to go on further sale. Sound familiar? Pullbacks create buying opportunities – and regrets when the sale is over.
Longs- Canadian Solar Inc. (CSIQ) , Omega Protein Corp. (OME) , Federated National Holding Co. (FNHC)
Shorts- NetSuite Inc. (N) , Chico's FAS Inc. (CHS)
By Jordan Kimmel, Chief Investment Officer at Investview, Inc. (INVU).
