We wrote in January “any material pullback that could make 2012′s chart look like a V or W on renewed European default or earnings concerns is a buying opportunity.” The correction is here, live and in person with global markets retracing 2012’s gains to date. The V can certainly deepen further, but this is the time to begin putting some of the cash you have on the sidelines to work.
The timing of the bottom of this correction is irrelevant and don’t expect to get it right. Just start putting 10-20% of your cash to work on days when the market is down over 2%. If we fall just another 5-7% from here, I will advise swapping out your boring, broad ETFs for something more fun like 2x or 3x leveraged ETFs and emerging markets exposure with more upside.
Corrections are psychological animals and we are definitely in the midst of a Euro-led psychosis. The faster Greece is resolved (stay with Germany’s austerity plan or leave the Euro) and Spain performs an Italian-esque political and economic turnabout, the better. But since the timing of this correction is identical to those we saw in 2010 and 2011, we are in no big hurry to get overexcited that the worst is behind us. The US economy is in a rough patch driven by the confidence-killing psychosis across the Atlantic. Notice nobody is worried about France’s new left-leaning leader or the actual Euro currency which is still far from parity with the US Dollar. All this negativity will pass and the stock market will show its strong hand again as we get closer to the Presidential election. Markets cheer political deadlock so bet on Republican gains in Congress and another four years for President Obama.