Should You Be Buying the Dip or Taking Profits?
"Be careful what you wish for" the old saying goes, "because you just might get it." That now what? scenario is exactly the situation facing investors today, as the market appears set to deliver the most sought-after sell-off in years. Prior to today's trade, the S&P 500 has fallen the past three sessions and has shed 1% since the FOMC meeting minutes were released at 2pm last Tuesday.
"We've been looking for something on the order of 3-5%, but would not be surprised to see it go 5-10%," says Mark Luschini, chief investment strategist at Janney Montgomery Scott. "Frankly it would be a healthy restoration of valuations that have gotten a bit stretched given the quarter we've had in the equity markets and we'd view it opportunistically rather than as something to fear."
As much as I am glad to hear the captain of my cruise liner is remaining calm and not about to abandon ship, there are at least a few things that trouble me about this retreat so far.
First, it's been the on-demand dip and markets rarely deliver what everyone wants or expects.
Second, the downside has been way too orderly so far, and that scares me, because we all know that it takes a whole lot more than a 0.7% slide to put the fear of God into investors again. A couple of 300 or 400 or 500 point, single-day, plunges in the Dow might do the trick.
Finally, 2011 is still fresh in our minds, where April turned out to be the starting point of a six-month, 20% hammering.
Other than that, Mrs. Lincoln, the sell-off seems to be just about perfect.
"This could also take on sort of a self-fulfilling prophecy because if we do get some carry through, investors may say, 'ah-ha, this is the correction we've been waiting for' --- and to the extent that they've been nervously long, they may actually use the opportunity to sell into it, and as a consequence, exacerbate the decline," Luschini hypothesizes.
For now, his strategy is to put together a shopping list that kicks in ''once we breach 3% or so," at which point it becomes hunting season. For Luschini, that would put the Energy (XLE), Financials (XLF), and Technology (XLK) sectors in his crosshairs, as well as the Regional Banks (KRE) and Homebuilders (XHB) on a sub-industry basis.
http://finance.yahoo.com/blogs/breakout/buying-dip-taking-profits-120441943.html