Markets Still In Correction Mode, Stay On Defense

Major indices have been in a large correction this past week. This should not be new to our readers, because we have warned of this correction a few times in the past couple of months. As an update though, we are still moderately bearish on the markets and our analysis shows further fall can be expected from here in there short-medium term.

Due to the fact we are still bearish on the markets we still recommend that you remain overexposed to defensive investments, such as long-term government bonds, corporate bonds, TIPS, and others.

One common adage that you should be aware if and avoid is buying commodities when stocks drop. There is a lag between the two markets, and lately gold has been a leading indicator, advancing before the markets, and falling before the markets. We expect this trend to continue throughout the most part of this year. Therefore, you should not buy commodities as a safe haven investment for the short-medium term. If you want to take your cue from gold to get into stocks due to its leading nature, then a good move would be to wait for gold to confirm a new medium term uptrend. This new uptrend in gold would be confirmed if it broke above $1,135/ounce. Also, we recommend that you avoid short term t-bills, they are in a bubble and there are much safer, higher returning alternatives.

As a more moderate to agressive investment for you to make some descent returns during this correction you may want to consider buying the dollar. Sounds funny huh, buy a dollar? you already have dollars why buy some? Well, buying the dollar actually means going long on, or expecting it to appreciate in value. When the market corrects the dollar in general strengthens against the Euro, British Pound, and other major currencies. You can buy the dollar in a variety of ways.

Some conservative methods of buying the dollar are the PowerShares DB US Dollar Bullish Fund (Symbol:UUP), and the Morgan Stanley Double-Short Euro ETN (Symbol:DRR); just look at how well these two long dollar funds perform when the major indices drop. Both of these two funds are up today, while the DOW is down about 200 points.

More agressive ways to go long the dollar are to short other currencies through a forex otc broker. You must be very careful when doing this. Even though all you would essentialy be doing is one investment for the short-medium term, which would require only one click of the mouse, you still need to understand terms like leverage, margin, and how the trading platform works. If you want to buy the dollar against other currencies as we suggested above, which is the same as shorting other currencies against the dollar, then on your trading platform you will want to place a bid (means sell) position on the pair where the dollar is the quote/counter currency, and in contrast if the dollar is thebase currency you will then want to place an ask (means buy) position. Both of these mean you would be making an investment in future dollar strength.

All of the above investment recommendations are for the short-medium term only, except for the the long-term government bonds, which should outperform well in both the short and long term. With this post we just wanted to inform you of our current stance on the markets and some defensive investment opportunities that will do well if our view continues to unfold. That is why this blog is called "Seedlings To Your Healthiest Money Tree", take these seedlings above and use them wisely.