Look to Bonds for Protection

The following market commentary was published earlier today by TheStreet's ETF Profits premium service.

NEW YORK (TheStreet) -- Investors would be remiss to believe that recent events are isolated incidents that will not have long-term implications for the U.S. markets or the economy. Even Fed Chair Ben Bernanke may miss the mark again, as he is discounting the higher cost of oil as a short-term situation.

Nuclear power as a clean alternative to fossil fuel is being questioned since the catastrophic events in Japan appear to be spinning out of control at the Dai-ichi nuclear complex in Japan. Today there are congressional hearings about the safety of nuclear power plants. Should any country delay or reverse its energy policy, it would most likely create more demand for oil, which, in turn, would lead to even higher oil and gas prices.

While the "Day of Rage" in Saudi Arabia last Friday passed virtually unnoticed, the state of affairs in many of the oil-producing countries could hardly be considered stable. Libya, Bahrain, Iraq and Iran are just a few of the oil rich nations experiencing or causing civil unrest. To think that these problems are going away quickly is folly. Potential supply issues in an era where demand may start to increase generally indicates that higher prices may soon follow.

"Nothing solves high prices like high prices" is an old adage that, if true, could signal an economic slowdown due to the soaring cost of gas and energy for the American consumer. Couple that with the continuing decline in housing prices and it appears as if our recovery is walking on eggshells. Housing starts have fallen dramatically, and building permits were issued at the slowest pace on record, dating back to 1959.

Technically, the major market indices have all broken support. While there may be periodic rallies, the trend now appears to be down. New stock purchases should be mostly avoided, unless there is a very special situation. Equity holdings need to be evaluated as to the sustainability of their current price. "Cut losses quickly and protect your profits" should be the mantra in this environment.

In uncertain times, a safe hideout could be in the bond market. The Vanguard Total Bond Market ETF (BND) invests in more than 3,000 bonds representative of the broad, U.S. investment-grade market. It has an expense ratio of only 0.12% and currently has a 3.4% yield. With a price of $80.84 at today's close, BND appears to have broken above a three-month, inverted, head-and-shoulder base. That would give it a price target of $82, while collecting the income. Place a stop at $78.98 for protection.

1 2 Next › Last »