The market has been in stealth corrective mode since February, failing to post new index highs, while sector after sector loses relative strength. Shareholders who have ignored the warning signs face tough choices in coming weeks, because profits and perceptions will be challenged, just like they were in the spring and summer of 2010.
While this year's correction should be less volatile, without a gut-wrenching "flash crash," the risk to overstuffed long-side portfolios is just as great, because the market has run into a brick wall of obstacles and cannot benefit from the supportive forces that were in place just 12 months ago. As a result, I strongly recommend that readers take steps now to protect their hard-earned profits. Why will this be a tough period? For starters, the market has nearly completed the mean-reversion event that started in early 2009. Saying it another way, we plunged during the bear market and then recovered in a V-shaped rally that has lifted us back into pre-crash levels. That activity is now complete on the Nasdaq-100 and Russell-2000 indices, but not on the S&P 500. We're also headed straight for QE2's June termination, as well as an inevitable cycle of interest rate hikes. The banks already sense this seismic shift and are acting accordingly, by underperforming the broad market and threatening to break down. Amazingly, a few folks still expect the Fed and government to apply even more stimulus, but that's just a pipe dream, as a massive debt bomb takes center stage and the 2012 presidential race gets under way. Given the negative backdrop, what can you do to protect bull market profits and survive a long, hot summer of challenging price action? Without question, options offer the best protection, because they let you let you sleep at night while you remain long and strong through a correction. But not everyone feels comfortable in this highly technical market, because you can pay dearly for a single misstep. For options-challenged readers, the next best step is to lighten up on growth stocks and add exposure to defensive plays that pay solid dividends. Of course, you've already taken a big hit on big tech, such as Apple(AAPL) and Google(GOOG), but the group has a poor mid-year performance record and could head even lower before finding strong-handed buying interest. Add Comment Tweet 1 2 Last » Next › adsonar_placementId=1341527;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=600;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; try { function DM_onSegsAvailable(segs, cust_id) { for (var i=0;i //* Global Functions *// function metadataRegisterNS(ns){ var nsParts = ns.split("."); var root = window; for(var i=0; i Dow Jones S&P 500 NASDAQ 10-Year Note 12443.55 1328.44 2796.25 33.91 Oil * 123.42 UP 176.8 UP 15.82 UP 51.28 UP 0.35 10 Yr 3.39% SPDR Gold 146.03 1.44% 1.21% 1.87% 1.04% Data delayed 20 minutes Top Stories and Tools var randnum = Math.floor(Math.random() * 100) if (randnum < 45) { document.write("Ex-Dividend Date Calendar"); document.write("Cramer's Latest Picks from Mad Money"); document.write("Bank Safety Ratings and Screener"); document.write("Top-Rated Stocks"); document.write("Highest-Yielding Dividend Stocks"); document.write("Warren Buffett's Portfolio"); } else { document.write("10 Best Dow Dividend Stocks"); document.write("Top 10 'Buy'-Rated Stocks Under $5"); document.write("6 Precious Metals Stocks Set to Explode"); document.write("13 Ugliest Phones of the Mobile Era"); document.write("10 Celebrities Who Lost Big Financially"); document.write("10 Industries on Life Support"); } Twitter Facebook RSS Mobile App adsonar_placementId=1341369;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=320;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; Brokerage Partners Free Newsletters from TheStreetAfter the Bell
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