NEW YORK ( TheStreet) -- Just like government shutdowns, bubbles are not a new phenomenon. Nor do bubbles inflate without letting some "air" out from time to time.The last U.S. government shutdown was from November 1995 through January 1996. President Bill Clinton and the Congressional majority couldn't agree on a resolution until a compromise prevailed. The S&P 500 fell almost 4%. It was no fun but it didn't burst the market's bubble. A month after the situation was resolved the S&P was up almost 11%. That transpired when that bull market was nearly seven years old and it had plenty of running room after the crisis was over. At the moment we're four and a half years into this bull market, and wait till you see how high this one goes. At the moment there's plenty of fear and trepidation. On Monday what some people call "the fear index" (a.k.a. The VIX) ended up for the day by almost 16%, closing at the high of 19.41. The VIX doesn't have far to go till it reaches the 52-week high of 22.72 reached on Dec. 31, 2012. So if you're a little perturbed by the headlines and the ruckus over government gridlock and the looming draconian debt-ceiling dilemma, you're not alone. But the Federal Reserve has our backs, so see this well-needed market correction as a chance to "stock up" on defensive, dividend-paying companies. Before making a couple of suggestions, let's look at what happened to the broader S&P 500 stock index after the VIX topped out at the end of 2012. Here's a one-year picture that paints a thousand words using the SPDR S&P 500 ETF ( SPY). SPY data by YCharts
All the factors that caused these amazing first two legs of this bull market are still in place. The final two legs are most likely to surprise to the upside in big ways.
Bargain Stocks and Bargain SectorsIf a stock or a sector is a classic bargain after the Fed's extraordinary monetary policies and bond-buying spree, something is probably wrong. Take the precious metal subsector of the broader materials sector. After a large correction in the price of precious metals, the miners have been hit hard and are still selling near 52-week lows.
For speculative investors who expect gold to end the year higher consider Newmont Mining ( NEM) which so far has paid more than a 3% dividend and trades very close to its 52-week lows. A more diversified way to buy a basket of the best industrial companies including Danaher is to scale into shares of the Industrial Select Sector SPDR ETF ( XLI). The ETF hasn't traded below $45 ashare since Sept. 6 when its intraday low price was $44.45. Consider buying half an allotment on the next day the ETF dips to $45.60 and then see if you can bottom fish for the other half waiting for the debt-ceiling showdown to frighten the price all the way to $44.
Two Resolutions for Bargain Hunters during a Bubble Market
- I will develop the discipline to buy on the dips and to average down. Jim Cramer likes to call that "scaling into a position" and during a short-term market correction the conditions are ripe.
- I won't waste money with high frequency trading nor will I try to time the market. A market in motion tends to remain in the dominate direction of that motion even during a seasonal respite.