3 Ways To Beat The Whipsaw Market

The CBOE Market Volatility Index (VIX), otherwise known as the stock market fear gauge, has spiked above 25 three times since early February. The VIX hasn’t visited that level for nearly two years.

Yes, volatility is back, as I’ve pointed out previously, but there is some good news.

Spring is typically bullish for stocks, with the S&P 500 up about two-thirds of the time, for an average gain of 1.2% in the month of April.

Plus, there’s no question stocks are technically oversold right now. In fact, the first trading day of April saw an extreme decline featuring:

  • More than 90% of NYSE volume in declining stocks
  • Only 14 stocks in the S&P 500 index moving up
  • Zero stocks in the tech-heavy Nasdaq-100 index up!

That’s oversold to the extreme.

So what’s next for stocks?

Let’s say you’ve already taken steps to trim some of your stock holdings and raise cash.

How will you know when it’s time to reinvest that cash? And what should you buy?

Let’s take a look back at how corrections have historically unfolded as our guide.

Source: Bloomberg

We’ve had six market corrections of 10% or more since 2009. It’s just that we haven’t seen one in a while. Since early 2016, to be exact.

So 2018 is playing catch-up, with the S&P 500 now dropping 10% twice since late January. And as you can see in the chart above, it often takes time for stocks to fully recover after suffering such trauma.

In fact, the median market correction sees a decline of about 15% over a period of roughly 150 days.

So far, the current correction for the S&P 500 is -11%, but over a compressed time frame of just 63 days so far. This means stocks could stay choppy, with big swings both up and down, for several more months.

You’ll need to be patient while building your watch list of potential stocks to buy.

As for what to buy when the time comes: Quality would be my first choice.

We’re in the later stages of this bull market, no question. Still, it’s possible that stocks could keep moving higher for several years more. But during the later stages of most bull markets, large-cap, high quality stocks tend to perform best.

In fact, quality stocks outperform the S&P 500 index over 70% of the time in late-cycle bull markets, according to Merrill Lynch research, and by 4–6% on average.

A few names on my personal watch list that make the grade include: Boeing (NYSE: BA), Starbucks (NASDAQ: SBUX) and Kimberly-Clark (NYSE: KMB), just to name a few.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

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Mike Burnick

With over 25-years of professional investment experience, Mike Burnick was a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. Mike joined Weiss Research in 2002 as an analyst and writer, and in 2008 was named Director of Research and Client Communications at Weiss Capital Management, where he assisted...

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