@theMarket: No Spring in the Stock Market

As spring finally arrives throughout the country, you would think the stock market would celebrate, but not this year. The indexes were slammed again this week and we can expect more of the same in the months ahead.

By now, if you have been following my advice, you have already raised some cash by selling your most aggressive equity holdings. How much cash you hold is up to you. However, before you sell more, remember, that this sell-off is only a temporary state of affairs. By the fall, you want to be fully invested once again.

In the meantime, don't expect the stock market to simply drop like a stone. What I expect is a series of lower highs and lower lows. That process is beginning to unfold right now. So far this week, we have about a 3 percent decline in the S&P 500 Index. The tech-heavy NASDAQ has had a far greater decline, dropping that much in a day.

Momentum and biotech stocks have been the name of the game since the beginning of the year. While the overall markets simply vacillated up and down over the last three months, those stocks were winners with some names gaining 30-50 percent. Most of those companies are traded on the NASDAQ. Now that the markets are pulling back, it is those same stocks which are leading us lower.

When I first warned investors of a coming sell-off, I mentioned the over-heated initial public offering market (IPO) as one clear early-warning sign that the markets had risk. I noticed that this week, which was billed as the busiest public offering week since 2007, actually flopped.

Only three out of seven new companies actually made it to market, while the others postponed due to market conditions.

By now, most of my readers (and clients) have become accustomed to volatile markets.

Many of you lived through the devastating declines in 2008-2009. We endured together several major declines together since then. We suffered through periods when the markets were going up and down 1 percent or more per day, so what we face this spring and summer should be small potatoes to you.

Those trials and tribulations have seasoned you. As veteran investors, you can live through this decline. You realize that this too shall pass. The key in the months ahead is to maintain your composure, resist making emotional decisions and, if you still have not raised some cash, I want you to do so as the market once again climbs to (and possibly breaks) the old highs.

My suggestions would be to sell small or mid-cap stocks or funds. Large cap growth funds are also a good idea, but resist the urge to just sell everything. Markets can be a quirky lot. The past has taught us that stocks can turn on a dime and if you don’t have skin in the game when they turn, you stand to lose quite a bit.

Sure, I'm looking for a 10-15 percent  decline, but what if stocks reverse and go higher before that? In October  2011, the stock market gained 9 percent in just seven business days. By the time some investors got the courage to get back in the markets had erased almost half their decline.

That's why you play the percentages when investing.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: A Crowded Trade

Just about everyone on Wall Street has jumped aboard the bandwagon by now. Sure there are some that still think the market can go higher but the vast majority of investors are now expecting a major pullback. Welcome to what's called a crowded trade.

Pundits are elbowing their way into the limelight on a daily basis sounding warnings of the imminent demise of the stock market. Traders are short and investors are selling as everyone eyes the exits. It appears all we need is someone to shout "fire" for the panic to begin. I wish it were that easy.

It has been over a month since I first warned that this quarter could be problematic for stocks. I was deliberately vague on exactly when this pullback would occur because a "topping out" process takes months to unfold. By the time many equity indexes react and the general public begins to register this process, many individual company stocks could be down 20-30 or even 50 percent.

Over the past few weeks I have brought your attention to several ominous signs that this process is occurring. Usually, small caps decline first and then mid-cap stocks with large cap names the last to feel the brunt. This week I also noticed that the major decline in "momentum" stocks are starting to spread further afield. Some big names in the financial, industrial and healthcare sectors, among others, are getting hit hard.

However, remember that this is a process. All the doom and gloom-sayers of last week, who were convinced that the correction had begun, backpedaled this week. They were flummoxed when the S&P 500 index hit another record high. The NASDAQ turned on a dime and raced higher, while the Dow Jones Industrial Average came within two points of breaking its historic high. No sooner had they wiped the egg from their face when all three averages plummeted again on Friday.

Folks, this is part of the process. It is not popular or pleasant, but it is extremely volatile. As such, I would not be surprised if sometime next week, after a further decline, markets do a one-eighty and reclaim the highs. Clearly, we need this consolidation process. After all, the S&P 500 index is up 179 percent from its 2009 lows. Small cap stocks, as represented by the Russell 2000 equity index, have become more expensive than at any time since 1995.

So let's get down to the nuts and bolts. What should you do? You can sit back, ignore the drama, suffer some paper losses and come out even by sometime in the fourth quarter. Or you can raise some cash by selling some of your most aggressive investments. Wait for a reasonable decline, say 10-15 percent, and re-invest the money. Finally, if you think you are good enough: go to cash and buy back in at the lows. Good luck with that last bit of advice.

Sure, I will endeavor to tell you when that will occur but honestly, how can I accurately pick a bottom when I can't pick a top? No one can and if someone claims they can, well, read their column or invest your money with them.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: The Faint of Heart

It has been at best a bumpy ride for stocks this week. While events in Crimea are partially responsible, there are some underlying factors just below the surface that may have more to do with recent performance than would meet the eye.

Breadth, the number of advancing stocks versus decliners, is one variable that seems to be flashing amber to red. Most market analysts take a faltering breadth ratio as an early warning signal. Then there’s momentum. Momentum is positive when existing trends in the markets continue or accelerate. Recently, that has changed.

Take the biotech sector for example. For most of the year this sector was a darling that at its peak was up over 20 percent. Investors, believing that the area offered enormous growth based on technological innovation, (like stem cells) and new health care initiatives couldn't get enough of these stocks. This week the sector hit a brick wall. Some stocks on Monday and Tuesday were down 10-15 percent with little warnings.

Other high flyers in the technology space were also clobbered. NASDAQ, which outperformed the Dow and the S&P 500 Indexes for most of the year, also experienced a fairly steep down draft. When momentum stocks and sectors begin to falter, I pay attention.

The initial public offering (IPO) market is also an indicator that bears watching. The calendar for new offerings has been red hot. Companies are falling over themselves to go public with 10 new issues this week alone. In the recent past, these IPOs have all opened higher than their initial offering price and then went straight up from there. This week's favorite, a digital entertainment company, was crushed on its first day out of the box; not a good sign.

The phone has been ringing off the hook all week. It appears my last column on the markets triggered some concern. I wrote that the mid-term election cycle could usher in a period of turmoil and possibly a 10 percent or more decline in the stock market. Given my bullish stance on the stock market for well over a year, my forecast upset several readers.

Let me be clear. I am still bullish on the stock market over the intermediate and long-term. I just see some digestion problems between now and the end of the summer. Any paper losses readers may suffer during that time period will be regained by the end of the year. Occasional pullbacks like the one I am expecting is a necessary and expected condition of investing in the stock market. As I have said before, if you can't stomach these occasional declines, you do not belong in the stock market.

The exact timing on when and how long such a possible sell-off would occur is problematic. Some pundits are arguing it has already begun. I doubt it. We will probably rally again up to the recent highs or even beyond before stalling out again. We may well have another month or so before the markets truly roll over so there is plenty of time to adjust your portfolios in the event you want to take some defensive action.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Hanging In There

Russia's attempted annexation of the Ukraine, China's internal economic woes, the less than auspicious enrollment numbers in Obama's health care initiative are just a few of the difficulties that the stock market has had to overcome this week. Given the news, stocks are hanging in there.

There's hardly a day goes by that someone, somewhere isn't calling a top to this market. The bears are doing their utmost to get a good old-fashioned rout going but investors by and large are ignoring their overtures. On down days, the volume dries up because most investors resist the temptation to sell. Only day traders appear willing to sell the market and even they are right back in again at the first sign of an uptick.

The market's momentum is clearly higher. That does not mean we are immune from bouts of profit-taking. This week, for example, the markets hit a three week low but it appears that these declines simply set us up for another move higher.

Those who are already invested are willing to sit through this consolidation phase. Those who are not yet in stocks are increasingly willing to buy on any dips, no matter how shallow. As one client recently said, "there is no place else to go, if you want to earn a decent return."

At this point in this bull market, it is not unusual to see the big gains of last year taper off to a slow grind higher, interspersed with fits of moderate selling. Sure, some individual stocks are still accumulating big gains or losses but the indexes are for the most part trading sideways.

Given the overseas background noise, the U.S. market's ability to absorb bad news is even more impressive. Events in the Ukraine this weekend will further test the market's staying power. Russia has engineered a sham voter referendum in the Crimea on Sunday. It is widely expected that the rigged results will give Vladimir Putin an excuse to annex that region.  There is little the West can do to stop it outside of military intervention, which is not on the table.

Economic sanctions by the U.S. and Europe, on the other hand, might hurt a bit but can go only so far before Russia retaliates by shutting off Western Europe's gas shipments. I can’t help but compare Putin's actions with those of Adolph Hitler prior to World War II when he annexed Austria and several other nation states unopposed.

At the same time, investors are concerned that China, once the economic locomotive of world growth is gradually turning into at best a weak caboose. As most readers know, speculation is rampant in China and has been for years. The real estate, financial and commodities markets have reached bubblelike proportions and the government is endeavoring to deflate the excesses without puncturing the balloon. How and to what extent they are successful have implications for markets worldwide.

As for you, my readers, I advise you do nothing during these short-term tempests, regardless of whether the teapot is in this country or somewhere overseas. The issues I see on these foreign fronts simply argue for remaining here in the U.S. market, which increasingly looks like a safe haven.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Markets Turn Positive for the Year

It is official. We made a new high this week and the markets appeared to be in "melt-up" mode. So why is everyone cautious?

After almost two months of consolidation, the equity markets broke out once again, spurred by the knowledge that if the economy falters, the Fed remains ready to reverse course.

Yet, by Friday afternoon, the bears were fighting hard to ruin the party.

It was no accident, in my opinion, that Fed Chairwoman Janet Yellen's testimony before a Senate panel on Thursday was followed by a record-breaking gain in the S&P 500 Index. But by Friday afternoon, the benchmark index was barely holding its gains. True, not all the indexes have reached new highs. Dow Theorists won't feel comfortable until both the industrials and the transports also break out and confirm the gains in the other indexes.

Yellen, in her testimony, said that the central bank was studying the economic data closely. She said, "a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point, it's difficult to discern exactly how much. In the weeks and months ahead, my colleagues and I will be attentive to signals that indicate whether the recovery is progressing in line with our earlier expectations."

This is a departure from her upbeat comments over the last few weeks when she appeared more positive over the future prospects of the economy. So why did the markets go up? I believe investors assume that if the economy were to slow further, the Fed would reverse its recent tapering and some argue that the Fed might even inject more stimulus into the economy.

Readers may recall that I have been expecting to see a spate of disappointing numbers in the weeks ahead as the country continues to suffer from the impact of the Polar Vortex. Today's GDP data, for example, indicated the economy in the fourth quarter dropped to 2.4 percent versus 4.1 percent reported in the third quarter. Lower exports and consumer spending were the main culprits in the sluggish number.

My own belief is that once the country thaws out from this winter's deep freeze, activity will once again spurt higher. However, between now and then, the stock market may get spooked by fears that the economy is rolling over.

As for events overseas, specifically in the Ukraine, the markets have been able to absorb events without too much difficulty. Naturally, when tensions rise between Mother Russia and the U.S., one must pay attention to events. Vladimir Putin seems bound and determined to escalate the situation further but hopefully cooler heads will prevail.

There has been so much talk this week on whether the market is "topping" out that I have my doubts. I would stick with the game plan and remain invested. The worst that could happen is that we have another mild pullback and we fall back into a trading range.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.