What Smart Investors May Be Doing Now

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Includes: BDX, FCX, MMM, PG, SNY, SSRI, WM
by: Marc Courtenay

The market ended the week of November 11th with an impressive rally, even though it's on some unimpressive volume and limited good news from Europe and Italy. I've studied and looked at the major market movers (volume-wise) today and it sure looks more like a short-covering rally that may set the stage for the next "shorting opportunity" for the big hedge funds.

We should keep in mind that if seasonal patterns stay in place, November is often the beginning of the stock market's strongest three-month period. With last month having been the fourth best October on record, history suggests even stronger gains may lie ahead. Of the 20 strongest Octobers since 1950, the period from November 1st to January 31st has been positive 17 times, with average gains over 6%.

Yet last Friday alone the major averages were up above 2%. Any unexpected, major or serious news that's not already baked into the market may counteract the historical pattern. As an example, there are rising tensions in Iran and Syria specifically. Also, the financial fiasco in Europe can have some unanticipated, dramatic "twist".

A Monday, November 14th's Reuters headline reflects the typical excuse for an over-bought correction, "Stocks Drop as Europe again Weighs on Wall Street".

So what are the big, smart investors doing now? Answer: It appears that they sell into any multi-day rallies and then go short near the short-term market highs. Last Friday's volume levels indicated that there wasn't any big-volume buying going on. Friday's volume leader, Bank of America (NYSE:BAC) saw way-below daily average volume.

The number two volume leader Friday Cisco Systems (NASDAQ:CSCO), was up around 2.2%, and we did see higher-than -average volume. The Nasdaq ETF QQQ (NASDAQ:QQQ) has average daily volume of around 81 million shares. Friday's volume was around 52 million shares---only 60% of the norm.

The Wall Street insiders that I keep my eyes on buy as low as possible and use the big upside days to capture some of their profits. They seem to anticipate more volatility ahead (and that's how we're starting the week of November 14th) and they want to have plenty of cash to buy low again.

A Surprising "Activity" of the Smart Money Crowd

When I've interviewed or talked to the most successful investors I know, I learned something paradoxical about how they remain "fresh and sharp". They've told me repeatedly that they love to take time off and get away as often as possible. They spend some time in nature, attend retreats at rejuvenating locations, and "recharge their batteries" so the stress doesn't overwhelm them and their instincts remain honed. Yes, they keep in touch sometimes while they're vacationing. But most times they don't want to know what's going on in Europe or on Wall Street. They want what they call "a complete and total diversion" and break! A number of them consider these get-aways and "diversion" an essential part of their overall approach to being successful. They know the stock market's best and worst "seasons" of the year, and they get ready for the action and the volatility.

So what might you do right now that makes sense? Do you have a plan to invest or trade in these uncertain and volatile times? Are you aware that two of the stock market's best months are December and January? Maybe it's time to take some money off "the table" and go get some rejuvenation sooner than later. I did that recently, and it helped me in my investment and trading decisions.

Just to illustrate, I looked at a company I like to both own and trade, Freeport-McMoRan Copper & Gold (NYSE:FCX) before I took my one-week hiatus. I studied its fundamentals, balance sheet, news releases and its web site. Freeport-McMoRan shares have been bouncing up and down off their 200-day MA since around the 24th of October, as the 3 month chart below illustrates. The volume has been anemic too.

Chart forFreeport-McMoRan Copper & Gold Inc. (<a href='https://seekingalpha.com/symbol/FCX' title='Freeport-McMoRan Inc.'>FCX</a>)

After I returned from my little "get-away", I saw Freeport-McMoRan in a different light, and was able to notice some issues that I'd overlooked before, including the recent short-term tendency for support to hold around $38.37 and resistance to hit around the $42 level. It's obviously become more of a trading stock, especially for those trading short-term in-the-money options. This doesn't mean it won't eventually have a big "break-out" above the $42 level, but it hasn't been acting that way recently.

My investor "awareness" and analytical instincts certainly seem more acute, heightened and focused after I've gone on retreat and taken a good "break". You don't have to have a clinical psychology graduate degree like I do to realize that it's really important to "step away" for awhile and gain a fresh perspective on any investment or a strategy.

As Leonardo Da Vinci said, "Every now and then go away, have a little relaxation, for when you come back to your work your judgment will be surer; since to remain constantly at work will cause you to lose power of judgment..." When Da Vinci gives advice, I like to heed it. That's what "makes sense" during a time when the economy and the investment markets are erratic, and acting more like a manic-depressive than a balanced, stable and dependable entity.

Bargains galore

When you've gotten away and enjoyed some relaxation and rejuvenation, then it's time to reevaluate your portfolio and your investment strategy. There are almost always "bargains" and under-valued choices to find, especially discernible if your mind is rested and sharp enough to notice where they are. Last week you may have been more inclined to be a seller, but when you look at the stock of drug and healthcare product companies like Sanofi (NYSE:SNY), trading at around 8 times forward earnings and paying nearly a 4% dividend, you may be tempted to be a buyer as well.

When I returned from my most recent "retreat", I saw three "bargains" that I decided to buy on a dip-correction day.

Becton-Dickson (NYSE:BDX) looked good to me when it dipped to $72 and now offers a 2.3% dividend (more than 10-year treasury bonds are yielding). I also snapped up some Procter & Gamble (NYSE:PG) at $62, which at that price had a dividend yield-to-cost of 3.4%. Waste Management Inc. (NYSE:WM) also hit my radar screen when it dipped below $31 and the yield-to-cost popped up to 4.4%.

Last Thursday, if you had an appetite for "bottom-fishing", you could have bought some Silver Standard Resources (NASDAQ:SSRI) after its irrational sell-off took the stock down over 21% in one day to as low as $14.53. When you study its quarterly results, balance sheet, resources and reserves, you may have looked at the sell-off as a bit overdone. It's definitely worth keeping on your watch list.

After a break, you might even see a company like 3M (NYSE:MMM) retest its 50 day MA (see chart below) and you may be able to buy some nearer to $77-a-share, which at that price pays a nice dividend yield of nearly 3%.

Chart for3M Co. (<a href='https://seekingalpha.com/symbol/MMM' title='3M Company'>MMM</a>)

So be inclined to sell when the market rallies on no particular glorious good news. Raise some cash for some "bargain-hunting" ahead. Hold on to some of the promising, high-dividend paying "gems" like FCX, PG or WM if you anticipate an upcoming seasonal rally; ever heard of the "Santa Claus Rally?

Most of all, always remember, the best investment decisions are made with a rested mind, a rational approach, and based on sound information and good judgment.

Disclosure: I am long FCX, BDX, PG, WM, SSRI.

Additional disclosure: Planning to buy MMM on dips near $77 and SNY below $33.

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