"In this age of instant information, investors can experience both fear and greed at the exact same moment"--Sam Stovall (Chief Investment Strategist, Standard & Poor's, October 2003).
Expect to see more of that kind of emotional and cognitive contradiction in the weeks ahead. It wouldn't surprise me if it lasts two months.
Yes, this is a good, old-fashioned scare-the-tar out of the investor, short-the-heck out of the stock market, down-and-dirty correction.
It's not fun, unless of course you own some puts on the SPX or happen to own some of the leveraged ETFs like the Proshares Ultra-Short S&P 500 (NYSEARCA:SDS).
Those who owned the iPath S&P 500 Short-term Futures ETN (NYSEARCA:VXX) had a perfectly lovely day on Monday June 25th when it leaped almost 8%.
Imagine if you'd purchased on Friday June 22 some of the July in-the-money option puts on VXX. The leveraged gains were amazing.
Elliott Gue at InvestingDaily.com had a powerfully insightful article at the end of last week titled "No Bull--There's More Downside Ahead."
He wrote of the "Three Headwinds" that will be part of the angst affecting the stock market media in the days ahead.
Plummeting industrial production, and the unexpectedly big drops in the leading indicators "New Orders and the Average Work Week," makes many an economist and the average investor swallow hard.
Elliott's summation gives us all pause to regroup and to rethink how we will see this unfolding "downside ahead"...and what we may do about it.
"What we're looking for over the next couple of months are signs of panic, just as we saw in the summers of 2010 and 2011. Perhaps another sudden deterioration in US economic data will prompt renewed recession fears in the US and send the market sharply lower," Mr. Gue opined.
"Alternatively, more bad headlines out of Europe could begin to weigh on global credit markets, which have remained rather placid over the past few weeks even as Spanish government bond yields jumped over 7%. Another debt downgrade for the US or rising fears of the 2013 fiscal cliff could also catalyze instability."
There you have a fairly accurate reflection of the talking points the mainstream media and the Wall Street spokespeople will be using.
Mr. Gue's concluding remarks reflect not only the lesson of recent history but one of the more positive approaches to the current belief that the-glass-is-half-empty, if not more so.
"Regardless of its manifestation, investor panic would suggest that expectations have moved from way too bullish in February and March to excessively bearish," he concluded. Then he wrote the less obvious:
"That will pave the route for a year-end rally just as it did in 2010 and 2011. We're just not there yet."
Here What Not to Do and What the Smart Money Does
Don't be buying today's list of worst performers unless you truly are a gambler or can research some overlooked reasons why they shouldn't have been sold off.
If you were going to take a couple of really speculative "rolls of the dice" you might want to consider Sprint Nextel (NYSE:S), which might be kept alive by government regulators to prevent Verizon (NYSE:VZ) and AT&T (NYSE:T) from having a total telecom duopoly.
The smart money crowd will be buying more Apple (NASDAQ:AAPL), especially if it trades down to around $550.
AAPL is the richest, cash-generation company on earth and if the share price falls below $550 it will be selling for LESS THAN 10 times forward earnings.
Right now it has almost $31-per-share in cash, no debt, and almost $31 billion in Levered Free Cash Flow (trailing-twelve-months).
The smart money will be buying McDonald's (NYSE:MCD), even as it trades just above its 52-week low and pays a whopping 3.2% dividend.
MCD is in constant growth and self-improvement mode with an impressive operating margin (31%) and a 38.2% Return-on-Equity.
And I'll let you in on a little secret! It won't be long before Procter & Gamble (NYSE:PG) gets so hated and so cheap that there will be a big shake-up in their top management.
When that happens, and it may be days or weeks away, PG stock will be up 10% or more in a couple of trading sessions.
Those smart enough to buy soon will be getting paid a 4% yield to wait, and the eventual payoff on owning the newest inductee to Jim Cramer's "Wall-of-Shame" will be laughing all the way to the bank.
The stage is being set that should allow patient investors to buy the best-of-the-best companies at prices we haven't seen in months.
Be ready, be informed, know what price is a "good" price, and have enough cash ready to buy when the masses are selling.
Disclosure: I am long PBR.