2012 Market Game Plan

by: Jonathan Novinski

The markets are starting out this year as planned, with the S&P up 3.11% at time of writing (as of Wednesday’s close). I expect continued gains in the first half of the year, but they will be small. If news stays calm and earnings stay decent then the market shouldn’t have volatile days, just more of what we’ve been seeing which is range-bound trading.

The market is currently in an uptrend that started on Dec. 22. For short-term traders, you may want to wait for a small pullback soon, because the market in the short-term is overbought. The pullback won’t be anything to worry about, just 1 percent to 3 percent over a few days, unless we are hit with unexpected news. (Currently news from Europe has been pretty good.) For long-term investors, don’t start buying anything until a pullback, and look at possibly picking up some inexpensive deep in the money puts while the market is doing well.

Game Plan for the Long-Term Investor

You should stay with safe dividend stocks for most of the year, until we get a good pullback. I like American Capital Agency Corp. (NASDAQ:AGNC) and Crestwood Midstream Partners (NYSE:CMLP). AGNC has a huge yield at 19.5%, and the price doesn’t swing wildly. CMLP has a good yield at 6.4% and price action is pretty good, other than the fact it keeps offering shares to make the stock more liquid and pay off debt from acquisitions. AGNC is safe to buy now, but don’t expect a gain from the stock, just a huge dividend check. CMLP is trying to digest the new shares that hit the market, so hold off on it for now. CMLP has support around its 50-day MA, but I don’t feel comfortable getting in when the market is getting ready to pullback. Wait and see how it acts during and after the pullback. Both dividends are safe, in my opinion, since revenue is increasing year over year in both companies.

Dividend stocks are a great way to stay safe and make money, but what happens if the market skyrockets? Well you still get your nice check, but you would have missed out on nice gains. So what I would recommend is picking up a stock that has been hammered, but still has growth. One should be enough, because remember, we don’t want to be in a lot of fast stocks in this market until a major pullback. The one I like currently is Green Mountain Coffee Roasters (NASDAQ:GMCR), which makes the very innovative Keurig coffeemaker.

This stock has been shot out of the sky, falling from over $100 to $52 now. GMCR’s free fall may be over, though. The stock crossed its 50-day MA today in unimpressive volume, but if it can stay above it the next few days then that would be a huge improvement and be a buying opportunity. So, we know GMCR is close to a buy point, but how is it fundamentally? I think it’s pretty darn fine. Its products still have a lot of growth potential, in my opinion. They also landed a good strategic partnership with Starbucks (NASDAQ:SBUX). (GMCR investors thought Starbucks was going to make its own coffee maker to compete with GMCR, which didn’t happen.) It still has competition, but it's high end. GMCR is somewhat like the Apple of the coffeemaker world.

I agree dividend stocks are great for long term investors, but having a stock like GMCR is what will accelerate your gains. Think of it like a plane in the sky. Your dividend stocks are the wings and keep you gliding. Stocks like GMCR are the motor. You can soar to new heights faster with a good motor, but if the motor happens to stall or fail, you can still glide along.

Game Plan for Short-Term Investors

Don’t buy anything right now. Wait for a small pullback, and then see where we go from there. If you want to really trade you can buy some short term puts. Stocks you could look at are GMCR, Delek (NYSE:DK), Globe Specialty Metals (NASDAQ:GSM), and Spreadtrum Communications (NASDAQ:SPRD). I’m not recommending those, GMCR being an exception, but they are good ones to watch during a pullback. If SPRD bottoms, I would pick some up, but it looks like that may take a little longer.


The market is looking nice and steady for a change. Be prepared for a small pullback, nothing significant, maybe 1% to 3% at the most. Long-term investors should mostly be in strong dividend stocks, with one or two beat-up growth stocks. GMCR was one I liked. Short-term investors should stay in what they have and not buy anything yet, unless they feel the need to buy some short-term puts. As long as no crazy news hits us, we should keep trading in a nice range.

Disclosure: I am long CMLP, AGNC. I plan on buying shares in GMCR in coming weeks if it continues to have a steady chart.