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Days like yesterday are never fun. The selling hit
everything; oil stocks, tech, stocks, commodities, retail, gold, silver,
you name it, it was down. Well, except for Treasuries and the U.S.
dollar.
Treasuries are a safe-haven, but in a different
way than precious metals. Precious metals protect wealth over the
long-term. Treasuries can generate a return even for a trade.
We also know that Treasuries and the U.S. dollar
tend to move in the opposite direction of the stock market. Today’s
upside action for Treasuries in no way changes my belief that Treasuries
are in a bear market.
*****Now, when everything sells off, it’s a good
indication that traders are raising cash. During the financial crisis, we
saw stocks hit incredible lows. And it wasn’t because their future was in
doubt, it was because, in many cases, the stockholders needed
cash.
Banks across the board sold to raise cash. You can
bet that Lehman Brothers sold everything that wasn’t nailed down to try
and stay afloat.
But what does that mean for stocks right
now?
Well, not much, I’m afraid. We’ve had a great
rally, we’ve got some macro instability in the Middle East and potentially
in China and Europe, and investors are taking money off the table.
It’s highly unlikely that we are returning to
another stage of financial crisis. I mean, the bears are only now taking
the very first level of support at 1,301 from the S&P 500. We’ve had
our eye on that level…
In fact, we may be seeing the breakdown of the
pennant formation we discussed just yesterday. Maybe we’ll see the
S&P 500 at 1,280. Maybe 1,250. It’s hard to call that a
disaster.
*****Corporate America is still putting up very
solid profit numbers. Household wealth grew by $2.1 trillion in the
4th quarter. And household debt fell for the 11th
straight quarter.
Our government may not be doing a very good job
reeling in its debt, but American families and companies are.
If you’re worried about your stocks, there are
things you can do. Sell some near-term, out of the money covered call
options, sell some stock outright and take some profits, or start making
a shopping lost for stocks you’d like to own.
The fact is, when the stock market corrects, it
often feels like the end of the world. The news flow and macro issues
often sound like they will crush the foundation of the economy and the
stock market.
But they usually don’t. Still, this is why many
investors miss the best buying opportunities.