They say that the stock market will do what will fool the greatest number of people and it certainly seems to have been doing that since last November. It’s one of the most impressive rallies I can recall – no corrections of more than 2-3%, low volatility, morning sell-offs repeatedly turning into afternoon strength. It reminds me of the market in 2007, when it shook off the subprime crisis in February and the Bear Stearns problems in August and continued to rise month after month into the October peak. Unfortunately, we know what transpired after that, don’t we?
Enjoy it while it lasts – and my main technical guru, who’s been uncannily accurate the last few months (and years) thinks it will last until mid-July and S&P 1,700. But whether the stock market stalls out here, a bit over S&P 1,600 or hits a blow-off of S&P 1,700, you know the market will eventually decline or correct – it will, won’t it? Are you prepared? Can you protect your portfolio and maybe even profit from the decline? What are a small investors’ options?
Obviously, the easiest thing to do if you are bearish is to raise cash in an era where it costs less than 1/20th of what it cost to do a transaction 30 years ago. Hitting the SELL button and raising cash and waiting for the market to move lower is not a bad move. But what if you have a defensive portfolio with dividend-paying stocks that you think can resist much of the forthcoming decline? What if you want to collect the dividends over the next few months of turbulence? What if you are convinced the general market is going lower but you are OK with holding your personal stock portfolio through a decline and don’t want to raise cash? What are your options then?