Week 1 (Jan 1 – 8):
It is hard to read the market. The Fed still wants to pair down its balance sheet by letting its bonds expire or to sell them. By not buying or selling US treasury’s it will still cause interest rates to rise. Trump still doesn’t understand the more efficient allocation effects of specialization and trade so whatever deals he makes will still make us worse off by decreasing production and increasing prices, inflation, and unemployment. These effects are beginning to show up among exporters and some domestic producers already. Unfortunately, things will eventually get much worse. As a consequence, some predict the market will soon re-test new lows so be prepared.
In the meantime, things appear rosy. If you want to abandon your cash positions, which I am not ready to, then consider growth stocks such as VSI, dividend growth stocks such as CCR, ETFs such as XLV, XLK, and XLF, and small cap growth mutual funds such as SASMX, LAGWX, and PRNHX. Good Investing, but be careful.
Week 2/3 (January 7 – 18):
I’ve been watching this “V” bottom bounce. It is not widely trusted to continue. The rebound or bounce is now at the technical resistance level for the major indexes and appears to need a catalyst such as a US – China trade deal to continue much higher. They way I played the bottom bounce was with dividend paying funds that tend to regain or revert to their means. This results in higher yields and capital gains. These funds have a tendency to growth with the economy and have a defensive nature that makes them grow if things go badly. They are VRP, PEY, OUSA, and several defensive bond – income funds that hold high quality (investment grade) bonds that are relatively short duration in nature. Because it was more volatile (i.e., it sold off more) and has long term growth I also bought a little bit of BST for higher yield and capital gains. I may revert to money market funds again if resistance in the stock market is not breached and volatility suggests another sell-off is immanent.
In the mean time, there are some other good stocks and funds to consider. These are all Zack’s rank 1s: (1) Growth stocks are: PAG, DELL, RCII and RECN. (2) ETFs are: KIE, BTEC, HDV, OUSA and KBWP. (3) Dividend growth stocks are: BMA, SSW, AY, and ANF. As mentioned, I hold OUSA at the moment.
Even though these recommendations are Zack’s 1s with high growth, value, and momentum scores and high industry rankings, they cannot overpower the trend in the market so buy them only if the market is rising or remains in a trading range. Also, I’d check their technical indicators such as the RSI (relative strength index) and MACD for entry (buy) and exit (sell) points. Good investing!
Week 4 (Jan. 25 – 31):
There is far too much pessimism to expect a re-test of the near term market lows. More likely, the rally off of the lows will continue. Because fundamentals are good among many stocks and the economy, only excessive optimism will signal the rally’s end. For growth, consider DAN. Dividend growth should include taking a look at GMLP, MGP, NEP, and VIV. ETFs to consider are IHI, KIE, and VOT. All stocks and funds are Zack’s #1s with high sector ranks (except for DAN) and excellent value, growth, and momentum scores. Good investing!
