In the very near term, I would not be surprised if SPY dipped back down to re-test its 50-day moving average and provide an additional layer of intrigue for bulls and bears.
These tests have been a common occurrence every few months as we have made our way higher and will provide another opportunity to shape portfolio changes based on fundamental or technical data.
Probably the one thing that would catch the majority of participants off guard right now would be a severe drop in stocks that ratchets up volatility, volume, and risk. Similar to the sharp sell-off we experienced in 2011, such an occurrence would likely lead to aggressive asset allocation changes that include high cash levels, shorts, and options plays to hedge existing positions. The majority of investors often get sucked into these traps at the low and then subsequently miss out on future price appreciation opportunities.
Additionally, don't count out the potential for another extension higher despite all evidence to the contrary. Just because the market is overdue for a correction does not mean that one will materialize in perfect order to suit your entry points. Markets can often stay irrational much longer than we can stay solvent, which means you have to trade the opportunities that arise from careful research and investment discipline.
Actions to Cure Your Boredom
If you have a healthy dose of cash on the sidelines, I think it makes sense to build out your watch list and look to average into new positions or add to core holdings on weakness. Additional volatility this year should be used to your advantage by purchasing dips of sectors or stocks that have favorable price trends. Buying short-term weakness when the larger technical picture is still intact can improve your chances of a successful investment.
The Health Care Select Sector SPDR (XLV) is one area I have my eye on for inclusion in my portfolio. Several of the underlying holdings, particularly in the biotech industry, are still well below their recent highs and I believe the fundamental factors supporting the health care theme are sound.
You should also be reviewing existing positions to determine where there may be a need for risk management tactics. I recommend that you have an exit point for every position in your portfolio as a function of prudent investment discipline in the event the market falls out of bed. Avoiding large losses can help you rapidly achieve your goals on a year over year basis. This is an easy thing to forget when it seems like the market is lulling you to sleep.
Take advantage of the complacency to build your game plan, stay balanced, and consider both sides of the trade. The boredom won't last forever, and when it ends, success favors the prepared.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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