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Why I Am A Nervous Wreck.

|Includes: COP, DUK, KMB, Southern Company (SO), T

There is no doubt about it. The stock market is making me nuts.

I'd give a dime to have the gold market and the stock market swap cycles. If I could get a dividend off gold, I'd be all about it.

(Not gold companies. That's another issue.)

But we are where we are.

For no good reasons I am completing a review of my DGI holdings and strategy. I've tweaked my approach.

1. I now have devised a strategy where no one position represents more than 5% of my portfolio.

2. I am targeting a specific return with certain income goals. Basically, I want a stock which yields 5% give or take 10%. I will accept lower yields (3%ish) now for decent dividend growth histories. That way I'll get my 5% in a couple or three years. And I like to see payouts that are realistic portions of free cash flow. (Who doesn't?)

3. I am working under the hypothesis that the market is at a cycle high. See the Big Charts image to see why.

(I fouled up the chart link and am trying to correct that after the fact. Apologies.)


Admittedly this is the third wave up in the cycle, and sometimes these things throw a cycle curve ball and do the opposite of what they "should" do. But that aside, the argument is compelling for a market top. (Please note that on the linked chart, a line across the tops has been broken to the upside.)

With this in mind I see three types of patterns in the dividend stocks I follow. They are, exciting new highs, clear double tops, and declining counter trend rallies.

1. Compare KMB and COP as stocks in new (recent) high territory. Its intriguing how similar some of these charts are.

KMB with COP overlay.

2. ABT is an example of a double top.

ABT - Note the upside breakout since original publication.

3. T, SO, DUK are examples of the declining stocks with a rebound in play. (MAYBE!)

DUK, SO and T compared.

So amid this I find myself worried that there is a decline of serious proportions coming at us.

On December 17-18 a decision will be made about the future of QE. Quantitative Easing may ease. And the question is, has the market priced this inevitable event into values, or is it going to land like a ton of bricks?

That this president is controversial is an understatement. But just as controversial is the wisdom of QE. Yes, the fed is trying to land an airplane with one wing broken and the other backwards.

In theory it might work. In practice I am not so sure. Chapter one is just days away. Hold on, it may get bumpy. Note the Russell 2000 as an example of an alarming chart.

Disclosure: I am long SO, T, KMB, COP.

Additional disclosure: I may initiate a position in stocks at random and without reason. Ignore anything I say. (Note: Article updated for better links on 1/10/14.