Just wait and see
Sentiment: Strong Buy
Watch out KLAC will tank tomorrow
CEO suck KLAC no earning growth in future
Stocks 60% over value
As we have looked through research from the firms that we cover on Wall Street, we find that almost everybody expects a pullback. Some see one that is more significant than others. None that we have seen could be as large as the one predicted by Piper Jaffray. The firm thinks that the market could slowly grind higher during the first part of the year to the 2,000 level on the S&P 500. Then what the firm sees may give most investors a pause -- a drop to the support level of 1,600 to 1,650. That would be a 20% decline at 1,600.
A 20% decline would be a full-blown correction. While many on Wall Street agree that it may be healthy for the market after a move of more than 170% from the lows in 2009, any way you look at it, it would hurt. Piper Jaffray also believes that 2014 will be a more volatile year for equities, as the combination of a mid-year election (four-year cycle low) and a new Fed chairman have each historically been associated with higher volatility for equities.
So how do you protect yourself if the predictions are right and we do see a 20% correction? We have five top ways for investors to build some insurance into their portfolios, just in case the Piper Jaffray team is right and we do see a major sell-off.
1. Use the Piper Jaffray interim high 2,000 level on the S&P 500 as a guide, or something close to that, and sell all of your stocks. The problem with that is it could be expensive from a commission standpoint. And if the firm is wrong, you may miss continued upside. If you have your account at a low cost online trading platform, it may be much easier. At a full-service broker, the fees would be sizable.
2. Buy protective puts in your portfolio. It is possible on a dollar-for-dollar basis to hedge part or your entire portfolio with put option contracts. The benefit would be that if you match the put amount to your portfolio assets you could protect against the downside move. However, if the market does not sell off the put contracts could expire w
How do you trade earnings?
Expectations are low for a reason. I wouldn't expect the overall market to see as good a return in 2014 as we saw over the last year. Many analysts are also predicting a pullback in the near term.
This means that you have to be laser-focused and step outside the box to find alternative investment methods that capture superior returns. Defensive stocks and utilities are not in vogue and even stocks with low multiples aren't going to necessarily be safe havens if their reports are weak. Not all stocks are rising in this bullish market.
To get the edge, I target and study analysts' behaviors and actions ahead of a report to sniff out those companies most likely to beat earnings expectations. I compound that data with relative valuation and sector favorability to find high stocks with a high chance of not only beating estimates, but moving higher on that news.
The perfect way to add this type of diversity to your portfolio is to target companies likely to beat analysts' estimates and keep the trades short in duration so you won't be over-exposed to a market that is still susceptible to headlines.
The bottom line is that we will still have companies that perform extraordinarily well and top analyst expectations this coming earnings season. These companies will see their share prices break away (positively) from the market average as they attract new money looking for yield.
You will need an effective tool to do this; one that stacks the odds in your favor. Whatever method you choose, be sure to allocate your assets appropriately, reduce risk where needed and take or protect profits once you have them. This will certainly be a tough quarter for the average "long only" investor.