Are Stocks Pausing or on the Cusp of a Larger Correction?

NEW YORK (TheStreet) -- Stocks are slightly lower on Thursday for a third day of declines. The recent price action has led many to wonder whether this the start of a pullback or simply a pause before stocks move higher again? 

There will eventually be a sizable correction, Stephen Weiss, founder and managing partner of Short Hills Capital Partners, said on CNBC's "Fast Money Halftime Report." But it's very difficult to get too bearish,  as global central banks continue to cut interest rates and pump liquidity into the financial markets. 

A 5% or 10% pullback is nothing more than a buying opportunity, Weiss said. Investors shouldn't fret about such an event, and should instead keep cash on the sideline to take advantage of a decline in stock prices.

While still constructive on U.S. stocks, investors should lower their enthusiasm with equities near all-time highs, said Rob Sechan, institutional consultant at UBS Private Wealth Management and one of the top-100 financial advisors according to Barron's

U.S. stocks seem to have the most relative value given the growth of the U.S. economy, while European stocks appear to have the most potential upside if the region's economy can rebound in 2015. If the Federal Reserve  moves to hike interest rates, possibly as soon as June, it would likely cause a pullback in stocks, Sechan added.

If that ends up being the case, he advised investors to buy the dip. 

"Don't fight the Fed," said Jon Najarian, co-founder of optionmonster.com and trademonster.com. In other words, investors shouldn't ignore central banks' continued measures to stimulate the economy by boosting liquidity, which in turn inflates equity markets. 

On March 9th, the European Central Bank will begin making its quantitative easing purchases, which will continue through September 2016. The total package is worth roughly $1.1 trillion. Why would investors want to bet against that move, Najarian said.

Investors should have some exposure to Europe, but U.S. stocks continue to perform so well, said Pete Najarian, co-founder of optionmonster.com and trademonster.com. Stocks look to be pausing at the moment, which is healthy for the continued move higher. Investors looking to stay long but wanting protection should take advantage of the low volatility levels, he added. 

While U.S. stocks may seem like they're stretched on valuation, Weiss pointed to other assets that are more unattractive. Gold is unpredictable, bonds are expensive and have low yields, commodities are under pressure from the rising U.S. dollar and currencies are simply too volatile. 

The conversation shifted to some of the market's overvalued stocks, such GoPro (GPRO). While shares have dropped almost 60% from a 52-week high of $89.47, John Fichthorn, co-founder of Dialectic Capital Management, says the stock is still a short. 

Even if action cameras aren't a fad, the segment is going to experience intense competition, he said, citing Xiaomi's new camera, as well as the products from SJCam. The increased competition will put pressure on both margins and revenue.

Another short opportunity is the Canadian bank sector stocks, Fichthorn said. The Canadian housing market has continued to appreciate over the years, much like the United States did pre-recession, but it never fell apart the like U.S.

However, now that oil prices have declined so rapidly, as energy makes up a large part of Canadian business, the housing market looks likes it could begin to deteriorate due to the amount of leverage that's been used, he explained. 

Tesla Motors (TSLA) is still a good short as well, Fichthorn said. Earnings estimates have come down and should continue to decline along with revenue estimates. That will at least weigh on the stock throughout 2015. Tesla is hitting a "crucial inflection point" as the company no longer appears to have such an imbalance between supply and demand, as inventories continue to build. 

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

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