As Tuesday's trading was ramping up , I quickly sensed that gold
prices may have gotten too hot to handle, with all the media fuss
yesterday as well as the spike in gold futures after hours.
Ironically, the exodus into gold after hours did not held this
morning, as gold prices corrected throughout the day. This was
despite negative headlines out regarding more job cuts coming
within financial services giant UBS, data out showing new home
sales in the U.S. declined to the lowest level in five months, and
an earthquake that rattled the entire east coast this afternoon! We
were hoping volume would have been stronger on such an up day (Dow
up 322, S&P up 38, Nasdaq up 100). Either way, we'll take a
break in the action when it comes to the barrage of selling that
has come the market's way. I keep stressing that rallies are a good
time to lighten up on positions that are weighing down one's
Credit card processing plays MasterCard (
) and Visa (
) had a strong day and are usually the first names in the financial
space to benefit from an up tape. As I've been saying for a long
time, banking stocks are best left to the most nimble of traders,
as most long- and short-term charts in the financial sector are
looking rather abysmal. Watching the transports for a short-term
bottoming sign could be a real tell if the bounceback will have
much legs, especially the railroad plays.
Elsewhere, earnings results helped push shares of Medtronic (
) and Bank of Montreal (
) higher. On the flipside, earnings results hurts of H.J. Heinz (
) and William-Sonoma (
). High-beta stocks like Coach (
), Carbo Ceramics (
), and Polaris Industries (
), which have been pummeled lately, were among the stocks gaining
the most on Wall Street today. This tends to be the case with the
higher-beta (higher beta meaning stocks whose prices move up or
down in price more on a daily basis than other stocks) stocks. Most
high-beta names have lower dividend yields and tend to be the
affection of daytraders.
The term "Turnaround Tuesday" has been gaining traction as of
late, as traders and investors have tended to push the panic button
on Mondays, setting up for quick snapbacks on the following
Tuesdays. As far back as I can remember, markets would normally
tend to look to Tuesdays as a day for bottoming action. The
psychological theory is that Mondays are hated by many - whether
it's a weekend hangover, or simply hating where we work, Mondays
remain by far the least popular day of the week. Picture what
happens when someone comes home after their first long day at work.
He or she turns on the television to find out the markets may have
had a rough start to the week, or another early early failed to
hold. The common reaction is then to go into a brokerage account
and put in your orders to get out the next day. I noticed this
trend as a trader, and many a time was able to capitalize during
those turbulent times.
Investors need to guard against making any snap decisions
regarding their investments. Like I said, as a new trader I learned
these lessons the hard way early on. I also learned how quickly
opinions could change on Wall Street. I noticed that "bottom calls"
would come early and often, eventually making a stock market guru
look like a genius to those not keeping score at home. Lastly, I
learned how quickly the media could adjust to rising markets with
how rapidly the coverage began to take a positive spin. Ultimately
over the long term, share prices will move on the business
prospects of a company and not media spin.
With the prices of gold ratcheting higher seemingly every day,
and equities pulling back, some hedge funds and money managers are
said to be putting on the "Long Gold, Short Equities" paired trade.
There is plenty of fancy talk going on in the business media about
algorithms/machines taking over the bulk of daily trading volume
and that is what could be behind the whipsawing action we have been
seeing. I can't be certain whether or not automated trading is
behind the volatility, but I can tell you that fund managers that
rely heavily on automated systems could eventually see their
systems turn on them. Machines don't trade on sentiment, just data.
If the numbers start to swing against them, the losses could mount
very quickly. I sense a bit of growing frustration in the retail
investor space about topics like this and what it all means to the
markets. I always think there will be short-term gyrations that can
sometimes turn into an anomaly for returns, but in the end the
markets do a great job of separating the winners from the losers.
It's just that traders don't have the patience to see positions
play out over the long term. They want instant results the minute
they enter a position.
Dividend/income investors should avoid being distracted by the
short-term nature of the ups and downs. The idea of how we maintain
"Best Dividend Stocks" List
is fairly unique. Unlike most research companies that push
investors to buy every single dip in a stock, we like to look for
the best names that make the most sense for investors ready to put
new money in the market on a monthly basis. Unless we think a stock
should be sold when it is taken off (very rare), we simply think a
name should be held. Now if the stock drops 25% off its 52-week
high and the fundamentals begin to deteriorate, by all means should
an investor consider implementing a sell discipline. If you end up
being too quick on the trigger and the stock stops falling, you can
always enter back in at a later time.
When the market was falling below Dow 7000 in March of 2009, we
had just six stocks on our recommended list. But within a few weeks
after the bottom, we started increasing the names on the list, and
many of the stocks went on to see some hefty share price gains (not
even counting the dividend hikes most put in). Some names hold up
better in a falling market, and that is where we feel new money
should be allocated to. At the end of the day, if one wants to
raise cash, my advice would be to consider trimming the weakest
performing stocks in your portfolio. Don't sell your winners
(unless you are trading the high-beta stocks that can fall just as
fast as they rise) before getting rid of your poorest performers.
You'd be surprised at how many people end up doing the
No one ever knows the exact bottom to a market or when the exact
top has been reached. Right now, stock investors are searching for
the end to the selling while gold investors are fantasizing about
how high the price of the yellow metal will get. We didn't get
bullish on the markets exactly on March 9, 2009 (the absolute
lows), but we weren't waiting till Dow 10K to feel safe about
getting back in. At some point - and it could be this week for all
we know - gold could do a complete reversal despite grim economic
headlines. Many pundits like to tell us stocks will rally when gold
pulls back. At some point, this call will be validated (just like a
broken clock will be right once a day), but then how long will it
last? And that is why trading the markets is so, so tough.
Headlines could remain negative, but all of a sudden a trade like
going long gold hits a wall. On the flip side, we could see stocks
rally even in the face of bad news as well. This trend could last
for a while, or it could be just a minor blip in the bullish gold
trend. That's why we analyze our data so closely, filter out the
noise, and keep investors on the right track to building wealth
with income-producing dividend stocks.
As a cautioned recently, the worst thing an investor can do is
pour money into stocks whose brands could be the next batch of
"has-beens." We have certainly done a stellar job of helping
investors avoid those value traps.
At the end of the day, every investor needs to do what they feel
is right for themselves, while keeping in mind that consistency in
decision-making will make one a better (and wealthier) investor.
Panic almost never pans out, but staying disciplined and trimming
weak-performing stocks will keep you from making the wrong
decisions whenever a "Turnaround Tuesday" comes back around. We
will continue to decipher the news in our non-biased format and let
you decide whatever position you feel most comfortable in.
Thanks for reading everybody. I'll see you tomorrow!
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here