Teetering at Dow 12,000

 |  Includes: AXE, BEN, DIS, NVDA, RJF
by: Steve Reitmeister

When the stock market is already in correction mode, then investors will give a lot more weight to every scrap of negative news. So it’s truly not surprising that the apocalyptic images of destruction in Japan put US investors in a sour mood Monday. This has us just under Dow (NYSEARCA:DIA) 12,000 once again.

Historically these events have generally been good for the local economy and their major trade partners. How’s that? Because this will require a big national stimulus plan to rebuild the destroyed areas. This puts a ton of fresh money into the economy, people back to work and a new sense of pride and purpose. That bodes well for the lagging Japanese economy and major trade partners like the US, China and South Korea.
Long story short, today’s negative view of these events will evolve into a positive over time. So by knowing this we are now a step ahead of the pack.
So now the pressing question is whether we will stay under Dow 12,000 or bounce back above as we did on Friday? I am going to stay with the odds I discussed in last Thursday’s commentary. Let’s review again:

“Quite possibly we bounce right back above 12,000 tomorrow and never worry about this again. However, I did ponder today; What are the odds that we could stay under 12,000 a while? I would say 40% chance which is not insignificant.

But that is not the only consideration at this time. What about the longer term picture? I would say 80% likelihood we are higher by year’s end because most economic signs are still quite positive. So that only adds up to a meager 20% chance of being below Dow 12,000 in my book.

Now consider this final point. What are the odds of perfectly timing exit and reentry into the market during a short term downdraft? 10% tops.

When I add up all these probabilities, the best course of action is to sit tight. Yes, that means the beatings may continue in the short run. And I can suffer that beating given the clear view that we will most likely be moving higher by year’s end.

Again, since timing in and out of the market is so difficult, then best to sit tight because the next leg higher can take place at any time. So I don’t want my money on the sidelines when the bullish bell sounds.

Expect volatility to stay in place until we get clarity on the health of the economy and corporate earnings. Unfortunately that news is still a month away. After a 6 month rally this volatility is a small price to pay.”

That is where I stand today and am ready to make changes as the preponderance of the evidence dictates.

Take 5

This is where I share 5 of my favorite stocks that all have a coveted Zacks Rank of 1 (Strong Buys)
  1. Anixter International (NYSE:AXE): The technology sector continues to be amongst the strongest groups with many attractive stocks like this one. AXE is a niche communications and connectivity player coming off a great earnings beat of +28% with many analysts expecting even greater things in the future. The recent dip under $70 makes it very attractive at this time.
  2. Disney (NYSE:DIS): Indeed “Content is King” as we rate the Media Conglomerates as the 4th most attractive industry out of 265. The cartoonists at Disney could not paint a better picture of financial health after this most recent quarterly showing. If the company does it again with its earnings release in April then expect shares to be at $50+.
  3. Franklin Resources (NYSE:BEN): We are now celebrating the 2nd year of this bull run for stocks. Times like these are very profitable for large asset management firms like BEN. So after this most recent correction is over, then expect investors to take a shine to shares once again.
  4. NVDIA (NASDAQ:NVDA): After the last earnings report shares ratcheted up to a new 52 week high of $26.17. Yet now as of Monday’s close shares are trading at a steep discount of $18.20. Perhaps this sell off is another great chance to get on board this thriving maker of graphics chips.
  5. Raymond James (NYSE:RJF): A clear beneficiary of bull markets are brokerage firms. If you believe that this bull run has more life left in it (which I do), then considered a mid-sized player like RJF with a lot of leverage to individual investors who are finally flowing back into the market.

Disclosure: I am long AXE, RJF.