Market Wrap-Up for Aug.23 (MA, V, HNZ, WSM, COH, MDT, more)


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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 portfolio performance.

Credit card processing plays MasterCard ( MA ) and Visa ( V ) 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 ( MDT ) and Bank of Montreal ( BMO ) higher. On the flipside, earnings results hurts of H.J. Heinz ( HNZ ) and William-Sonoma ( WSM ). High-beta stocks like Coach ( COH ), Carbo Ceramics ( CRR ), and Polaris Industries ( PII ), 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 our "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 opposite.

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 .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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