Vacation Week Trading

The market is in an uptrend – a weak one so far – but uptrend nonetheless. What does that mean? It means that market participants are looking to buy, tentatively.

The mega cap dividend leaders like Verizon (VZ) and Johnson & Johnson (JNJ) were muted today. Some high flying stocks such as Buffalo Wild Wings (BWLD) made decent moves today as did the mega tech firms such as Google (GOOG), Cisco (CSCO), and Intel (INTC).

We can still assume then that the mega caps and mega cap techs are still desired by institutional buyers. On the other hand, Gold & silver ETF’s, along with mining stocks are leaking daily as the fear of inflation (or belief that world central banks won’t print money to stimulate economies) diminishes. Silver has been a falling knife and gold might join in. Platinum, is also near its lows for the year. be careful trying to ‘catch’ these things.

Trend or Buy the Dip?

As of the moment, the market is a trending market. During the volatility from August to November, buying dips worked quite well, and may still work well. But trying to buy trending stocks did not. Since the mini shakeout at the end of November, these mega cap dividend leaders have trended up – my theory (which doesn’t really matter but I share it anyway) being that these stocks are being bought in lieu of bonds by large investors because they are “safer” than government bonds and offer better yields with opportunity (eg: Microsoft pays a roughly 3 % dividend and the owner has the possibility of growth and inflation protection – the 10 year US government bond holder has no such benefit).

The big tech stocks are a subset of the megacap dividend payers. They may be more affected by European issues than JNJ might be because European governments are big customers of the mega techs – and government spending worldwide is contracting. It’s like that people will keep smoking (PM), using their mobile phones (VZ), and buying diapers (JNJ). So the megacap dividend payers in basic industries may be closer to bonds in safety than governments. The companies have more cash in the bank than many governments!

Bottom Line

If you are trading, it seems the trending megacaps are working, as are some other ideas. Speculative stuff is getting drilled and companies without earnings (much less dividends) are undesirable at the moment. Future opportunities are not interesting to investors based on the performance of natural resource exploration stocks and small biotech (which is actually starting to move based on PBE – the Powershares Biotech & Genome ETF).

This whole gig could go either way – so make sure your risk management program is in place or if you are a buy and holder, make sure you can handle another 20% correction. This market may continue to rise but the landscape is ugly and anything is possible.

Personally, I added a couple of trades on dividend paying companies with growth potential. These are not long term investments so there are predetermined exit points in place. I still hold my 2 long term investments and a few other trades along with my discovery resource positions, which even though a couple of them are trading for pennies over the value of cash on the books, no one cares and I am underwater on these. FYI: these are too thinly traded to sell and it’s just the way discovery stocks work – you buy when no one wants them and sell when everyone is clamoring for them, like in 2010.

At the time of this writing, I or my clients own the following investments mentioned in this column: gold, silver

Note: this article is meant to be some helpful thoughts to share and not investment advice specific to you. Please consult your own advisor regarding investment and financial decisions. See our disclosures page