Take Advantage of a Market Reversal
Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com
. He's also a regular contributor to RealMoney
subscription site. If you'd like to see all of Jon Markman's RealMoney
As the first quarter of 2005 fades into investors' rearview mirrors, the financial media have been quick to recap its results with a jaundiced eye. 'Twas bad, to be sure, for all indices and sectors not related to energy, utilities or basic materials, and it seems that everyone knows now that the bad tidings will continue as the feds bear down on a new round of villainous CEOs.
But will the past quarter's travails really continue in a straight line right through into the new quarter, or is a confounding reversal on the horizon?
It's tempting to see the world of finance as if it were on rails, advancing from point A to point B without a squiggle along the route. But unfortunately, it does not work out that way. Bad quarters sometimes lead to good ones, just as one-time heroes like Maurice Greenberg, former head of American International Group (AIG), can morph enigmatically into goats.There's little doubt at present that a combination of higher interest rates, higher energy prices, weaker domestic employment and softening global demand will ultimately pummel the market this year. How could it not? Yet before the drubbing begins in earnest, there could be some remarkable trading opportunities in the opposite direction, and soon. And there's always the possibility, remote as it may be, that the recent decline has sufficed to discount market participants' expectations of rough stuff ahead.
Is He Crazy?Robert Drach, a cynical but deadly accurate veteran of the investment advisory business, has kept his clients primarily in cash during the past year. But last week he began a process that took his accounts from 2% in stocks to 26% invested and now 50% invested. Drach revels in market declines, as he crows that they afford him an opportunity to exploit less-experienced players' negative emotions to his advantage. "At this juncture we prefer the market splat so we can move to full investment without interruption," he said on April 3, recommending the purchase of beaten-up stalwarts such as Doral Financial (DRL) and Citigroup (C). "The process of profit extraction requires taking advantage of fellow market participants. Almost every position we purchase is directly against prevailing sentiment."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV