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: The markets have been on a great run the past three months or so. Will this ride continue or should we be taking this opportunity to take some profits? In this month's article, I explain my take on the markets. Don't forget that you can keep up-to-date with our activities by "liking" us on our Facebook page or by following us on Twitter. |
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The Markets:
What to do Now?
Wow! What a welcome change of pace the past three months have been for the stock market. The S&P 500 is up over 20% during that time frame and up nearly 9% for the year. This is certainly making it easier for investors to open their monthly statements. The problem we face, however, is whether we should continue to ride the wave or to take some profits off the table.
While I believe that the market will end the year in positive territory, I fear that we may run into a market pullback at some point during the year. Of course my crystal ball isn't clear enough to know if/when this will happen, but there are a few factors that support my belief.
The DOW Theory- Most of us are familiar with the DOW Jones Industrial Average as it is widely quoted throughout the news. The DOW Jones Industrial Average consists of thirty stocks that together are believed to be representative of the market as a whole.
The DOW Jones Transportation Average is another DOW index. This index consists of twenty transportation stocks (mostly trucking, rail, and airline stocks) that together are believed to represent the performance of the transportation industry.
One of the tenants of the DOW Theory states that the DOW Jones Industrial Average and Dow Jones Transportation Average should follow each other. If the two diverge, there is the potential for the market to shift direction. Over the past month, the performance of the DOW Jones Transportation Average started to flatten, then it turned negative. If this tenant of the DOW Theory holds true, then it could mean that the DOW Jones Industrial Average could go down as well.
Following the Herd- Unfortunately we tend to act in the opposite manner that we should when it comes to investing. When the market is down and struggling, we get nervous and want to get out of the market and away from the volatility. When the market is doing well, we get excited and want to add more money. What we tend to do is sell "low" and buy "high"; the exact opposite of how we should invest.
The Chicago Board of Exchange Volatility Index (also know as the VIX) shows the mood of investors. A value of 20 is considered the norm. Anything above that value and investors are considered nervous. Anything below, and investors are considered calm.
Recently the VIX hit 16.10. That's a level of comfort that hasn't been seen since last July-right before the market started it's decline through October. This may mean that investors are getting too comfortable with the market and currently buying "high."
According to CNBC.com staff writer, Jeff Cox, the "smart money" is beginning to move to cash, while the average retail investor is adding to equity investments at a rate not seen since last April. In his article Is the Smart Money Headed for the Sidelines?, Mr. Cox points out that institutional investors (pension managers, etc) and corporate insiders are beginning to reduce their stock exposure and lock in their profits. He states that corporate insiders are selling stock at a rate that is double that of January and the highest since last May.
None of these signs by itself means much, but seeing retail investors feeling comfortable and moving more money into equity investments while the "smart money" begins to head for the exit worries me. It could very well turn out that this year's markets may look similar to last year's turbulence.
I have been suggesting to many of my clients that they begin taking a portion of their money out of stock investments and move to cash or bonds. If you're wondering what makes sense for your portfolio, I suggest that you contact your financial advisor. I'm also happy to meet with you for a portfolio review to discuss your specific needs.
This article is for informational purposes only and is not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
Indexes are unmanaged and investors are not able to invest directly into any index. Past performance is no guarantee of future results.
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Office News 
Just a reminder ... We are always accepting donations for the local animal shelters - toys, tennis balls, collars, leashes, food, cat litter, cardboard trays, office supplies, cleaning supplies, towels, mats, washcloths, etc. We will accept donations Monday-Friday between 8:30am & 4:30pm. |
On the Home Front
 As I mentioned in last month's newsletter, the end of my dart season was in early February. We had a season ending "shoot off" tournament where I placed second in my division! |
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I hope you enjoyed this month's newsletter.
Best Wishes,
Woody Derricks, CFP®, ADPA(sm), CDFATM
President
Phone: 410-732-2633 Toll Free: 877-807-2633 Fax: 410-732-2634 Email: woody.derricks@lpl.com Facebook: facebook.com/partnershipwmTwitter: twitter.com/partnershipwmSecurities offered through LPL Financial - Member FINRA/SIPC LPL Financial Representatives offer access to Trust Services through The Private Trust Company NA, an affiliate of LPL Financial. Certified Financial Planner Board of Standards Inc. owns the certification mark CFP® in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements. |
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