As market falls, get your defenses ready

Stock indexes might not be in correction territory just yet, but they're getting closer. Now's the time to consider what moves to make.

By Benzinga Apr 15, 2014 10:38AM

File photo of trader Anthony Carannante working on the floor of the New York Stock Exchange © Richard Drew/APBy Charley Blaine


The stock market is getting whacked. The question now for many investors is what to do about it.


The first thing to do is to understand what's going on -- in part because simply saying the stock market is getting whacked doesn't tell the whole picture. Benzinga on MSN Money


So let's sketch that in and then decide whether to sell, sell a little, do nothing or buy.


First, the Dow Jones industrials fell 143 points on Friday to 16,027. The Standard & Poor's 500 Index dropped 17 points to 1,816 --and the Nasdaq Composite Index slid 54 points to just under 4,000.


In addition, the Nasdaq-100 Index tumbled 41 points to 3,447. The Russell 2000 Index tumbled 15 points to 1,113, and the Dow Jones Transportation Average gave up 69 points to 7,362.


For the week, the Dow lost 2.4 percent, with the S&P 500 off 2.7 percent and the Nasdaq down 3.1 percent. The Nasdaq-100 tumbled 2.6 percent. The Russell was down 3.1 percent and the Dow transports 2.8 percent.


A correction?

The real damage is visible if you look at overall declines -- since these indexes hit either all-time highs or multi-year highs in the last few weeks. Dow and S&P 500 are down 3.6 percent and 4.3 percent. The Dow transports are down five percent. The Russell 2000 is off 8.3 percent. The Nasdaq has lost 8.5 percent, and the Nasdaq-100 is down a whopping 12.1 percent.


The index losses don't mean the overall market is in a correction yet; a correction being popularly defined as a decline of 10 percent or more from a recent high.

The Nasdaq and Russell 2000 indexes very nearly are, however, and the Nasdaq-100 definitely is. Twitter (TWTR) is down 46 percent since its Dec. 26 peak of $74.73. Netflix (NFLX) is down 28.7 percent since hitting an all-time high of $458 on March 6. Amazon.com (AMZN) has dropped 23.6 percent since peaking at $408.06 on Jan. 22.


Watching the momentum stocks

Biotechnology stocks, meanwhile, are getting slaughtered. Gilead Sciences (GILD) is down 22 percent. Halozyme Therapeutics (HALO), which has been working on a drug to treat pancreatic cancer, is off 59 percent since peaking on Jan. 24.


The damage is being suffered most by momentum stocks: the stocks that screamed for attention as they posted huge gains in 2013 and into this year. Computerized trading tools have decided the stocks were overbought, which they were, and will drive the prices lower until they get too low.


But keep this in mind: Thirteen of the 30 Dow stocks are still ahead on the year, led by Merck (MRK) and Caterpillar (CAT), both up about 11.7 percent. Goldman Sachs (GS), Visa (V) and aerospace giant Boeing (BA) are the laggards -- down 13.8 percent, 11.7 percent and 10.6 percent, respectively. More than 230 S&P 500 stocks are still ahead on the year.


Time to pay attention

So what should you do? If you've been playing the hot stocks and made a bunch of money, it's probably time to sell at least some of your stake. If you haven't thought about what will trigger a sell, now's the time. A 10 percent decline from, say, Friday's close is probably appropriate. That way you've limited your downside. If the stock doesn’t hit your trigger but recovers, then you're in the clear.


If you've just bought in, decide what price is appropriate to limit your losses.


But if you're a mutual fund or exchange-traded fund investor, selling in a panic is probably the wrong thing do. The blow-off in stocks has been nasty, but it is possible the selling has been extreme. Momentum measures suggests a bottom is starting to form. It may take a while to emerge, however. And even if a bottom is formed, that doesn't mean those stocks are going to shoot higher.


The market is selling off after a fabulous run-up since March 2009. There's been too much froth generated by a hot market for initial public offerings. But a successful IPO does not mean a successful stock. Meanwhile, there are worries about China, Japan and Russia and Ukraine. Bond yields are falling because of an undefined unease about the domestic and global economies.


Spring is often an uncomfortable time for the stock market. Therefore, it will pay to pay attention.


More from Benzinga


28Comments
Apr 15, 2014 12:04PM
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This Russian event is literally the most insane thing I have seen since the BS in Iraq. If it continues and worsen, the Markets falling will be the least of our worries. When is the last Time Russia had any ship in the Gulf of Mexico? When I hear our Bought and Paid for Government Officials talk about Russian fighter jets have aggressively taunted an American warship, I find that type of Talk idiotic. When is the last time we allowed a Russian Destroyer in our own Backyard? We don't.

Ukraine is Bankrupt, let Europe fight for them and or fund them. We need to take care of America First. The sooner the better.
Apr 15, 2014 11:05AM
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Hi Charlie and you should come more often.  Now I can give my take on what I expect to happen in the not to distant future market wise.  We are now over the top in the transition to a global economy.  The massively stupid profits the Internationals have amassed, which have bolstered share prices are now on the decline.  Wages in the Asian rim have been rising some 6 or 7% while American production wages have remained stagnant and even declined.  Hidden inflation, or should I say unreported inflation is such now folks are even limiting their purchases of imported cheap labor products as evidenced pressures on Wall Mart and other importers.  PROFITS most easily made through these low wage production imports will now decline very rapidly.  Japan has gone from a nation of healthy reserves to massive debt in just 25 years.  Their market was at 36,000 and now some where near 14,000.  I suspect that is the same plight we will see here at home.  Look for China to more resemble Japan very quickly as the American money is shutting down rather fast. The biggest immediate threat is all the QE money that was lent to China to build infrastructure to get these products delivered to our consumers through the banks by the FED. As demand shrinks and dies it will become apparent there is massive fraud in the Chinese banking system and their demise will very much resemble our S&L and banking debacles we have witnessed here in the last twenty years. Why you ask,  because the same people got away with it the last time and no cost was paid by anyone so why wouldn't they just do it again on a more massive scale?  And yes you and I but mostly our kids and grandkids will be on the hook for it.
Apr 15, 2014 11:22AM
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NEW YORK- U.S. homebuilder sentiment edged up in April but remained mostly dour on lingering concerns about stiff credit conditions for buyers and tight supply of building lots and labor, the National Association of Home Builders said on Tuesday. The NAHB/Wells Fargo Housing Market index rose to 47 in April from a downward revised 46 in March, the group said in a statement. Economists polled by Reuters had predicted the index would rebound to 50 in April."


We need to stop giving "Economists" credibility. here, do your own research. Pick a sprawl town in your area, type it into Zillow and click on Cheapest. See the builder properties cascade before you ALL under the header: FORECLOSURE. Our economy hasn't had a legitimate pulse for 7 YEARS now. When does the Kool Aid stop?

Apr 15, 2014 12:17PM
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If you've been vigilant about adjusting your stop/loss limits, it doesn't really matter where we go from here, or how far...

Oh, I almost forgot, blah blah scumbags, blah blah manipulators, blah blah accelerated selling, blah blah dirtbags in control, blah blah,
Apr 15, 2014 11:56AM
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"Markets falling? Get your defense ready"

Well either they are or aren't. We do know for FACT that gasoline prices are soaring Again in spite of the FACT that Consumption has gone down over the last few Years while Production is doing the exact opposite. Leave it to Big Oil to never let an opportunity to gouge Consumers go to waste. So don't expect any Pipeline in America to help consumers. Big Oil will always manipulate supply to wash away any benefits of increased Production.

We have a Global Economy and Global Pollution. The Global FEDS are printing to infinity and the average Joe/Sue has their heads stuck in the sand, totally ignorant to what's actually going on. The Same Bought and paid for politicians will get reelected while we will Never learn from the mistakes of the Past.

Those that caused the Great Recession will again benefits the most from the current Bull Run and feel the least amount of pain once it all implodes. This cycle of Boom and Busts are getting bigger and our ability to fix them has only lessen. Uncle Ben left America's Future in the Worst Shape in Modern History and no amount of QE can fix that now, more fake money will only make matters worse.
Apr 15, 2014 1:34PM
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The first thing you need to do is look at your time horizon.  Do you need this money now or do you have many years until retirement.  If you need the money now and you are worried about loosing to much money, then you most likely should not have been taking that much risk.  It is time to reallocate your investment portfolio. 

 

If you have many years until retirement, then hold onto your investments and trust in your overall investment plan.  Was the investment solid when you bought it and is it still solid today?  If yes, then keep it.  If no, then question how you went about picking your investments to begin with.  A solid investment will go up and down in value, but over time its value will increase. 

 

Remember you are investing for "Direction" not "Perfection".

Apr 15, 2014 1:29PM
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Who cares?  The problem is here as we have "no guts", anymore. I will say it again as this "idiot" in office that should never have been allowed to be President of the USA; and, is leading us into chaos right now.  The "Bundy" thing is just a start.  You want "grass roots"... you just got it, POTUS.  Go away and go away, quickly.  No one gives a damn other than trash and welfare types.  Why not get us back to work and forget the "teleprompter" crap.  You are a liar and a con.  Russian and all European nations laugh at us.  Go back to Chicago and be the "hood" you are.  Phony, ****.
Apr 15, 2014 12:35PM
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Gotta love the headline:  "As market falls, get your defenses ready"

 

I "got my defenses ready" over a month ago when I exited the markets on March 10th and went into into a guaranteed interest account.   When the markets look to be turning, I'll get back in, but right now, I'm still making money while the market is falling.   The only thing I regret is that I don't have a way to short the markets with a 401K.

 

Oh, and one more thing, as I alluded to on another thread  a few days ago, "making money" may well turn out to be a very subjective term.  The dollar will actually have to be worth something for that statement to have any validity to it.

Apr 15, 2014 12:03PM
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Thanks, Charlie.
I just can not fathom how the FED and Congress and our leaders can ignore the laws of money management and expect the economy to right itself and out grow their deficit spending. If the market is indeed forming a floor, it can not hold long. The spring pump from consumer spending will not be sustained once the bills are due. Protect yourself as best you can, your expectations from your past experiences are subject to change. The Tax man comes and he doesn't want to hear that you can't/won't pay. Our past success does not guarantee future favor when the monetary system fails.
Apr 15, 2014 1:24PM
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Get our warships out of the Balck Sea now! Quit pushing the Russians. Do we want Russian warships sitting off Malibu? Let them handle this Ukraine thing as they see fit. If our incompetent leaders start a war with these guys, it won't just take place the usual 10,000 miles from here.

Apr 15, 2014 12:57PM
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How dumb do you have to be to write stock market "advice"?  Benzinga is doing his best to set the dumb-o-meter score really high.


"If you haven't thought about what will trigger a sell, now's the time. A 10 percent decline from, say, Friday's close is probably appropriate. That way you've limited your downside. If the stock doesn’t hit your trigger but recovers, then you're in the clear."


Two kindergarten points to be made about that:  First, if you like a stock well enough to hold it at, say, $100, why wouldn't you love it at $90?  And second, how fabulous is that advice if your stock goes down 10.1% and then you sell it and it recovers?  Since you apparently liked it before at $100, are you going to double down on losing twice by following Benzinga's advice a second time?  That is, buy it at 100 and wait for it to go back down to 90?


If you're wasting your time reading Benzinga, then here's the best stock market advice you'll find near his musings:  Buy and hold stocks.  Period.  Don't sell until you need the money.


You saw it here first...

Apr 15, 2014 1:21PM
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Isn't this what some of have been saying? The market is an over inflated balloon thanks to Federal Reserve meddling, investors are poised for some harsh realities.


The question is, when will Americans learn that free markets work best when we stop trying to manipulate outcomes.

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SELL SELL people the yen carry trade has blown up in large investor's faces and they are selling everything to cover their losses which are huge as they borrowed money at zero percent interest from Japan's central banks then pumped the money into stock options in the EU and USA hoping to make a killing only to get killed. But But the Japanese yen is gaining strength which means those trades have just blown up. Yen carry trades need the yen to fall in value and the stock markets to increase in value for them to work and that is not happening right now.

IT IS ALL BLOWING UP IN THEIR FACES

This is going to drag down the market a lot folks.

Apr 15, 2014 1:39PM
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Probably ironic, but when all look to one for advice, that is when the trouble begins. When it's everyone thinking for themselves, things seem to function better.
Apr 15, 2014 1:58PM
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What a hysterical report of taunting, there has always been these near contacts between Russian and NATO units. The only problem is the news media blowing things out of proportion.
Apr 15, 2014 1:15PM
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This "Ying/Yang" movement in the stock market is ridiculous.  It is a result of "instantaneous computer trading" that foregoes all human intervention thereby ruling out fundamental thinking.  All of the cold and calculating math formulas that direct selling and purchasing of stocks moves faster than people can absorb the results.  Therefore all of the "masses" that do not have access to this type of trading become emotional and hesitant with their trades; overreacting to the tiniest of information that they take to be negative, or positive, and then making an impulsive market move thereby adding to these radical swings.  Couple this with the inane preoccupation of companies -- and analysts-- with short term profits at the expense of true growth; and you have today's-- and unfortunately the future's,-- stock market!  There is no greater example of this than the current Ukrainian situation.  Petroleum speculators create an artificial oil scarcity fear, driving up the prices of oil products ( ie. gasoline) when there is absolutely no proof that any escalation of the activities in that area will affect oil supplies.  Meanwhile they get rich by creating this shortage and the corresponding product price jump that occurs; and will also make money on the "downside" when the reality of a "business as usual" oil supply is realized, by being the first group to dump the stock and hedge the product pricing.  It is a "game" that burns the "little guy" who is constantly chasing the returns, while creating a sense of mastery and acumen in a few of those little guys who might have gotten "lucky" this time and guessed right. This leads them to become a bit bolder the next time, only to be burned to a greater degree as they realize that they are masters of nothing!!  Slow things down!!! ---, so investor reason, rather than emotion, rules; and outlaw this rapid computer trading system, so that sanity will return to the stock market!!
Apr 15, 2014 4:50PM
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"Last year the Russians had a nuclear missile sub in the Gulf of Mexico and the navy did not know about it for a long while"

Say's who, that report was by a suspect source reported by a person with a clear Political agenda.

"Russia docked one of their destroyers in Cuba more than 2 months ago"

No, they docked a Old Spy ship which is about as old as most Cars Cubans currently own. It wasn't on permanent patrol as are the US/Europe plans in the Dead Sea.

So Here's the Real Problem and Russia is only doing what we would do if the same things where happening in our Backyard.

"The deployment of the four destroyers, known as the European Phased Adaptive Approach, is a centerpiece of the European missile defense shield, which will also include interceptor batteries in Poland and Romania, radar in Turkey and a command center at Ramstein in Germany, a US Air Force base."

So as Euro-Zone and our Government talk out of both sides of their mouth about aggression and taunting, we are building a Defense Shield to reduce Russia's own ability to assure their survival. Military might has always been the Key for Economic survival since the beginning of Humans. Today, that holds even far more weight. Yet some folks behave as if it isn't so when clearly, that has always been the case.

As I stated before, if this keeps up, the Markets will be the least of our Worries. All this is doing, putting China on alert to Ramp up it's Defense spending and Capabilities. The World is becoming less safe, not more. Between the corrupt Global Feds, Pollution, and idiots politicians letting their Ego's get the best of them, I don't know which fools will sink us first.



Apr 15, 2014 11:12AM
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Well say it ain't so, Charley....But we may have been living on borrowed time or fiat dollars..??

Also seems that "margin accounts" are at all-time highs or something comparable to 2007-2008.


That does not bode well for long term, blended or diversified investors...

Once again we pay the price, for investing gone wild by a few speculators or manipulation.

Do we stay the course and ride it out, for a known recovery that should follow...?

Or do we book some decent profits on a few hi-fliers, only to buy back on a correction..?

A thousand questions, only a dozen answers..imo. 

Apr 15, 2014 12:49PM
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Well Charlie, you've got the timing down but fail to mention the all important question: WHY?
And follow that up with: how that reason will effect your own investment strategy ?
Some could be due to easing of Q.E. Some could be from Europe & China's slowing economies & rumors of war. but that's not the main issue here.

Turn your attentions towards domestic investments instead of emerging markets-preferably in your own community. Most of the uncertainty comes from not knowing how many people paid that first premium for Obamacare. And we won't have those hard numbers until probably after the 2nd quarter ends. Almost 70% of all wealth in the US is held by banks & insurance companies. If they can't give the correct revenue figures, how in the world can you expect them to invest in the markets with any certainty? 

It's going to be a mind-bender roller coaster ; Strap in tight !!
Apr 15, 2014 11:54AM
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A little depressing to see a hundred point gain turn into 50 point or so loss....

Guess some could try and blame it on the bad guys...?

I really doubt the call came in around 10-10:30 to drop the Markets(DOW) 150 points, though.

Just surprised at the irrational exuberance at the start to see it turn into losses as such.

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