Get Your Rally Caps Ready – This Market is About to Ignite!
Dear Wealth Watch Reader,
Before we begin today — questions for you about making money from dividend stocks:
- How much have you collected in dividends over the years?
- How long have you invested in dividend stocks?
- Do you do it for the “free money” aspect of dividends or some other reason?
We’re putting together some special research on dividend stocks and we’d love to have your perspective.
If you could write to WealthWatchFeedback@AgoraFinancial.com with answers to the three questions above, we’d appreciate it. Thank you for writing in!
Now back to your issue.
Today, I examine what the market’s remarkable late-day resurgence on Friday means for investors in the long and short term.
Including why now’s a perfect time to start shopping. Read on below…
Stocks Just Did Something Unusual, and Potentially Bullish
The wild ride continued on Wall Street last week.
Last Friday brought yet another swoon in the Dow Jones industrial average during the morning session.
But then just as we hit the 1 p.m. hour, something unusual and potentially very bullish happened.
The market closed up over 300 points!
But before jumping in to what this means moving forward… a little context.
You see, whenever the market is in a selling streak as it has been for the past two weeks, it’s tough for stocks to gain any traction on a Friday.
Gun-shy investors are wary to step in and take positions ahead of the weekend… when anything can go wrong.
You only have to look back one week to Friday, Feb. 2 for proof.
That infamous day, the Dow gapped lower at the open and never looked back.
The blue chip index finished the day down a devilish 666 points, closing right on its low for the day. Then further complicating things, the index plunged another 1,100 points the following Monday.
But there was a bit more bullishness in the air last Friday as the Dow cut its loss off with a gain of over 300 points.
An impressive reversal of fortune.
It’s also a bullish sign that investors are willing to step into the breach after the carnage we’ve seen over the last two weeks.
And while last Friday marked what could be the makings of a resurgence, accounting for the full week shows the Dow still dropped more than 5%.
Ditto for the S&P 500 index, which also busted below its widely watched 200-day moving average for the first time in 15 months.
But a market rebound has to start somewhere, and Friday’s show of strength and corresponding drop in volatility may have been it.
At the very least, it’s the start of some stabilization for stocks.
Recall, I had pointed out in a previous issue that there are two possible scenarios for the market once the bottom is in:
- A “V”-shaped bottom followed by a surge back to new highs.
- A trading range that develops as stocks move mostly sideways.
It seems to me like the latter scenario is more likely to play out here. If so, look for a wide and volatile trading range to develop for the Dow between roughly 26,000 on the high end and 23,500 on the low end.
This could prove frustrating for investors who want to “buy the dip” only to see the market roll over again to test the lows, but that’s why patience is a virtue in today’s trading climate.
According to a Bloomberg report last week, the worst may already be over for this correction.
Based on research by Goldman Sachs, the average bull market correction over the past 70 years of data is about 13% over four months.
At the recent lows, the Dow and S&P have already dropped about 10%. There have been nine other corrections of 10–12% over the last 70-odd years, and typically the worst is over within four–eight weeks as stocks bottom and begin to rally again.
So the good news…
Odds are that the lows are already in for this stock market correction, at least in the near term.
Sure, stocks could slip another 2–3% lower over the next two–four weeks to line up with the “average” correction.
But we’re close enough to the bottom to start buying select stocks from your shopping list.
Bottom line: After a sharp market break over such a short period of time, stocks typically snap back in the next three–six months and often hit new highs.
It’s time to start shopping again.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
Editor’s note: Remember our special request at the start of today’s issue.
Write in and tell us how much you’ve made from dividend stocks over the years and why you like them.
Send your responses to WealthWatchFeedback@AgoraFinancial.com.