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How to Stay With an Overvalued Market

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When things appear to be topping, where do you look?

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Investment Strategies for When You're Afraid of Potential Market Highs

Whether you missed the big market rally or made fantastic gains, you're probably concerned about owning stocks after such a meteoric rise. This is because nobody wants to buy high or hold overvalued stocks in case we have another famous October correction or crash.

Here are some suggested strategies if you want to stay with the market without feeling like you're buying or holding high:

First, you must think in terms of buying low and selling high. Even if the market goes higher, there's going to be plenty of rotation out of high-flying stocks into others that have lagged the market and are still low and undervalued.

Not all stocks have gone to nosebleed levels, but it requires much homework to find them. Many are still floundering, building giant bases, and waiting to be discovered and do some catching up.

Look at the daily and weekly stock charts for stocks and markets that are far from their highs and are attractive long-term values. Managers are now looking for ways to reduce exposure in high-flying stocks after a spectacular 70% rise in NASDAQ, and so they will start to rotate to stocks and sectors that have lagged to reduce both volatility and risk.

In October, Coby Lamson Capital Management will be launching an ETF and stock timing service with Minyanville using its "Grail" timing indicator to help investors find buy low and short high opportunities.

Next, look to stocks that pay attractive dividends and have the cash flow to support those dividend payouts. This, too, is another way for managers and investors to reduce risk because dividend-paying stocks will have less volatility in market corrections and sector rotations.

Many investors who have been on the sidelines will feel more comfortable entering the market in a dividend-paying stock vs. a high-flying technology stock that already doubled or tripled from the March lows.

Look for themes that make sense to you and for opportunities to hedge your portfolio by going long and short.
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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