My friends and clients get on me at times for being too pessimistic about the market, but it’s that worrying nature that prevents me from having drawdowns in my clients’ accounts.So, exactly what am I talking about?When I look at the market I am simply amazed at what it’s doing. The market is advancing in fits and starts on mediocre volume (which isn’t unusual these days), while declining days come on big volume and seem to scare everyone half to death even when the S&P is only down five points or so. When I start to arrange the informational puzzle pieces I don’t really like what I see. I’m sure people will howl at me and call me names for saying this. That’s fine -- there are always two sides to a market -- but I’ve also been doing my job very well this year as my primary strategy is beating the S&P handily so far.So, what do I see?
To close this particular list, market leadership is supportive of these issues:
That puzzle does not add up to the S&P hitting new highs to me, though I imagine that “forces” will get it to 1400. I’ve preached caution and attentiveness to readers for some time now and that stance hasn’t changed. I still feel like we are playing musical chairs and the longer the lunacy continues the more difficulty we will have in a correction... which could be right around the corner with the alleged ending of QE2. With most targets for the S&P around 1400-1450, I would consider portfolio hedges around that level. For my primary strategy, I am buying some longer term puts on volatile positions while bolstering the portfolio’s income generation with some high quality bonds (if I can get them for a decent price), master limited partnerships like Linn Energy (LINE), Plains AllAmerican (PAA), Natural Resource Partners (NRP), and Enerplus Resources (ERF), and defensive dividend paying equities like AstraZeneca (AZN), Sanofi-Aventis (SNF), GlaxoSmithkline (GSK), (which I wrote about on March 21st), and Vodafone (VOD). Positions like these reduce portfolio beta while providing a stream of income that helps reduce portfolio volatility even more. This setup really helps smooth out a bumpy road while giving some participation on the upside.Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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