Raise A Little Cash, Get Defensive

September 25, 2006 at 11:59 am  ·  Category: Market Commentary, Portfolio Management

I tend to agree with Graham Summer’s Growth Stock Wire missive this morning, “The Correction is Here”:

It’s quiet …… too quiet.

I don’t mean to rain on everyone’s parade but September has been much too tame so far.  There was a slight dip in the S&P 500 at the beginning of the month.  But since that time, the market has been rising steadily.

Investors are getting complacent again.

Considering that from 2001 to April 2005, 43% of all new private sector jobs were related to housing, it’s little surprise that a slowdown in that sector would affect the economy as a whole.  However, it’s taken the average US investor too long to see the connection.  I expect Joe Investor will really put two and two together over the next couple of weeks as the market plummets.

Yes, I believe the market correction is here.  We should see the S&P 500 drop to 1,300, or even lower to 1,260.

In the meantime, tighten your trailing stops.  And expect a terrific buy opportunity to come some time in early to mid October.

At some point, given what is really going on in contrast to the perception of what is going on some piece of data is going to come out, some company is going to report surprisingly bad earnings, and people are going to start to think that maybe its not going to be such a soft landing after all. 

Grant says its coming in the next 2-4 weeks.  He could very well be right.  You can’t time these things perfectly but you can position yourself by raising some cash for buying opportunities and positioning your investments somewhat defensively. 

With the Dow up more than 90 points so far today (3pm Eastern Standard Time – the market, of course, closes at 4pm EST), the NASDAQ up about 27 points and the S&P 500 13 points right now is a good time to do so. 

UPDATE: Commenting on today’s housing numbers The Big Picture’s Barry Ritholtz notes the same disconnect between the housing situation and equity prices:

I continue to be impressed with the disconnect between Housing and Equity markets.  Its pretty clear the bond markets get it, as have the commodities markets.  Equity markets, on the other hand, are still contemplating some sort of a soft landing/Goldilocks environment.  Well, someone will be right and someone will be wrong……..

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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