Be Wary About Buying Dips in Stocks
The next six weeks will be critical to determine whether stocks will start a renewed upward push or get caught in a true correction that will reset the markets. September is a seasonally weak period of time where volatility kicks into high gear, and this year the markets will be keyed into the Fed's strategy to taper its asset purchase program.
Based on recent history, stocks will likely react negatively to a slowdown in the accommodative monetary policy that has pumped up asset prices. Bonds have already had a severe reaction to the prospect of severely hampered demand for Treasury and mortgage-backed securities. This has sent interest rates skyrocketing. Stocks right now are in a precarious position as they sit at the crossroads of technical support and economic uncertainty.
The Final Word
The ebbs and flows of the market are a healthy system that allows for excesses to be worked off and new capital to be distributed to areas that are undervalued.
I will be looking at any additional pullbacks in the market as a buying opportunity to put new money to work for a year-end rally in the fourth quarter.However, I will be sizing new positions in the context of a risk-management framework that takes into account the new normal of interest rate volatility. Any new money put to work should be done so with a sell discipline to guard against the possibility a more protracted decline. At the time of publication the author had no position in any of the stocks mentioned. Follow @fabiancapital This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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