Is a 7% pullback enough for the market after being up 29% the year before? I’m not sure, but I am buying the dip. Here’s why: I, like others, have been piling cash on the sidelines waiting for the correction. Now, it has come, but only by 7%; we need another 3%…right?
Wrong. I, like everyone else, am anticipating the magical 3% mark. That would be too easy. In most cases, it pays to be a contrarian and do the opposite of what others are doing (buy on down days). So, on any pullbacks to the 200 day moving average, or circled area on chart below, I will buy. As long as the thesis hasn’t changed.
Is the economy growing? Yes, at 3%. Interest rates are low, unemployment is slowly recovering, key data points (ISM manufacturing index, PMI’s, etc.) are still expanding, investor sentiment is low, transports are going strong (Dow Theory), housing is continuing to recover, China is still growing GDP at 7%, corporate earnings have been strong, with over 60% beating on top-line growth, & the VIX Index, which measures fear levels of investors, is high.
(VIX Volatility Index Chart below: When the Vix is low, time to go. When the VIX is high, time to buy)….I could go forever on why to buy this market.
Portfolio Strategy:
As long as the fundamentals in the market remain the same, the strategy will continue to be to buy the dips, closely watching my stock to cash ratio along the way (always stay in 50% UPRO: CASH). I am just owning the S&P 500 3X leveraged ETF (UPRO) and some speculation marijuana stocks that are helping the portfolio significantly (more on those later).
About UPRO: You can never put anymore than 20% of your money in one stock. But, the S&P 500 is over, well, 500 stocks…so you are more than diversified there. Well how about the fact that it’s a triple, a down market will hurt me right? If you monitor your cash position right, no. I am currently outperforming this down market in a roughly 50/50 UPRO:CASH ratio.
What about these marijuana stocks? The marijuana stocks are going strong, no doubt. More than 5 of my names have been up by more than 100 YTD. $HEMP was up more than 400% for me at one point. However, I wanted to wait until a good enough pullback happens in these exciting stocks before I start issuing alerts. Regards.
