ETF Expert

I’m not buying at the moment. I have been selling to protect long-term gains as well as principal. And the process has been grueling… to say the least.

The reward? Stock markets here and abroad are getting hit harder than the portfolios that I manage. (Some reward, huh?!)

Yet it’s still painful for my clients as well as the investing public at large. After all, how can stocks work their way to record heights over 7 1/2 months, only to end up in the red in less than 4 weeks!

An optimist would call the recent selloff a "correction." A correction refers to stock assets that give up 10% or more from the top. (The S&P 500 SPDR Trust SPY hit 155.53 at its July peak and has dropped 9.32% to 141.04 here in mid-August.)

Indeed, I believe that this activity to be representative of a correction. I recognize the perils that exist in subprime/credit/interest rates/oil/the economy. Still, I believe that we are looking at a restorative correction rather than the big, bad, ugly "bear." (Note: Bear markets send stocks reeling for 20% losses or greater.)

Here’s why the bull market should return with vigor:

1. It’s a "housing bubble," not a stock bubble. What the country faces today is the continuing effects of a housing bubble… now a housing slump. Although the Fed has been resistant to recognizing the economic threat of the current housing slump so far, it will ultimately decide to lower interest rates in an orderly manner. When it does, stocks should respond favorably. (Stocks are actually cheaper on a price-to-earnings base than they were in 1995!)

2. After anxiety comes fear. After fear comes panic. After panic… the big O. Opportunity always follows panic sellers. And we’ve very nearly reached the point of panicky pandemonium. We’re able to see this on what is called the put-call ratio, where the level of "puts" is indicative of excessive pessimism. In fact, the levels are so high, those who do not follow the herd are searching the bargain bin as I type.

So one might ask, why then am I not buying? As a manager of other people’s money, families ask me to protect their assets as well as help them grow. And that means, one has to have a high level of cash during market storms. The same holds true for my personal money… cash is needed to ride out volatility.

Will my clients and I miss some of the upside opportunity? Probably. Yet emotional well-being and financial well-being go hand-in-hand.

It follows that I will continue to use stop-losses to sell riskier assets, raising cash for investor portfolios. At the same time, I will use a variety of concepts for reacquiring exchange-traded stock funds with the greatest potential.

Here are several items to look for: (1) A S&P 500 SPDR Trust SPY that climbs above and stays above its 200-day average and (2) A reading on the Purchasing Managers’ Index (PMI) Composite that increases the likelihood of the Federal Reserve lowering interest rates.

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.