Market Summary
The recent stock market price pullback has not done
significant damage to stocks overall. The major downdraft basically swallowed
the priciest and riskiest issues primarily in the Biotech and Tech sectors. The
recent turbulence started as a reaction to the Federal Reserve’s announcement
of plans to reduce the stimulus that has been the life blood of the market the
in recent years.
At this point investors will be watching to see if the
bleeding has stopped or if the damage becomes significant and infects the
overall market. Thus far the major difference between the current market
pullback and the steep drop to start the year is the current losses are
primarily focused on high priced risky Biotech, Technology and small company
stocks. Conservative blue chip names are holding up well and investors with
diversified portfolios have suffered minimal damage. If stocks continue to
avoid broad-based selling and maintain during earnings season, this should bode
well for the near term market.
Investor
Analysis
A good move is to identify and monitor stocks you like but
were too expensive in the past. But avoid the recent high-flyers that are now
tanking, that would probably be a bad move because of the risk involved. Also,
if this is a price pause before moving higher we can map out some bullish
trades where you also have downside protection in case a move higher is just a
counter-trend action and stocks continue downward. Whatever you trade, right now is the time for patience and
discipline with tight stops and conservative risk appetite.
Possible Strategy
Invest in the DIA ETF (NYSEArca: DIA) to take advantage of the strongest stock market sector. The DIA is an exchange-traded fund (ETF) "is an exchange-traded fund based on the Dow Jones Industrial Average. The Fund will, under most circumstances, consists of all of stocks in the Index. The Index includes 30 of the largest international companies based on market capitalization. By trading like a stock, the DIA has continuous liquidity, can be short sold, bought on margin, provide regular dividend payments and incur regular brokerage commissions when traded. The DIA is used by large institutions and traders as bets on the direction of the 30 DOW Jones Industrial stocks. They are also used by individual investors who believe in passive management (index investing).
By Gregory Clay
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