NEW YORK (Fabian Capital Management) -- Over the last 12 months the winning trade has been to buy any 3%-4% dip in stocks and ride the tide higher.Every modest pullback has been met with positive reinforcement from the Federal Reserve, better-than-expected economic data or upbeat corporate earnings news. When you examine the chart of the SPDR S&P 500 ETF ( SPY) below, the 50-day moving average (smooth blue line) has clearly been an excellent line of support for nearly every pullback this year. The major indices have continued to surge as investors rotate away from interest rate-sensitive investments and throw caution to the wind by driving Tesla Motors ( TSLA) and Netflix ( NFLX) to new highs. These go-go stocks have been the recipients of tremendous success over the course of 2013 as investors have been rewarded with triple-digit gains. However, now may be the time to start thinking about locking in some gains on these winners and looking to get more defensive with your portfolio.
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.