Defensive picks for an improving market

With the overall markets moving higher, investors should step into these stocks, ETFs and precious metals.

By TheStockAdvisors Aug 21, 2012 10:51AM

By Mary Anne and Pamela Aden, The Aden Forecast

 

While it's still too soon to be sure, several markets are showing renewed signs of strength and we're starting to buy into some of these stronger markets and diversifying for the first time in quite a while.

 

We feel it's warranted. If we're wrong and this proves to be a false alarm, we'll switch back to only safe haven investments. For now, most signs are giving the okay to wade into some of these potentially good markets.

 

The overall stock market is looking better. That's pretty impressive considering all the bad news the markets have been facing, like the sluggish economy and the European crisis, which have been at the forefront.

 

Stocks moving up despite bad news

In spite of this, the market has been quick to jump up on any good news. The market's been volatile, but the tendency has generally been up.

 

In other words, the stock market is taking a more positive view. It's not reacting as much to the bad news as it is to the good news, and that's a bullish sign.

 

It's also a sign the stock market sees better times ahead. At this point, we don't know how long this will last, but as long as stocks keep rising it'll be reinforcing this message.

 

The fact that stocks are rising despite what's happening in the world is also not that unusual. The stock market tends to be a leader and it'll often move up when the news is bad.

 

Indices above their moving averages

We know the conditions aren't perfect, but they are getting better. First, note that all of the U.S. stock indices have risen and stayed above their moving averages, which is bullish.

 

Several important indices also broke out to the upside of the sideways bands they'd been trading in. This, too, is positive, technically indicating stock prices are likely headed higher.

 

Currently, we advise investing no more than 15% of your total portfolio in stocks at this time, diversified between some of the stronger U.S. and global markets

 

If we see signs that a further upmove is not going to unfold, then we'll be quick to sell our new positions. Keep that in mind and remember that the coast is not yet clear, so stay defensive.


Considering the improving situation, we feel it's okay to buy a small position in some of the stronger stocks, like:

 

American Electric Power (AEP)

Powershares Nasdaq (QQQ)

SPDR Dow Jones Industrial Average Diamonds (DIA)

SPDR Energy Select  (XLE)

Wal-Mart (WMT)


There is strength in gold

As for gold, it's been almost a year now since the $1900+ record high was reached. Considering the 170% gold rise (from the 2008 low to the year ago record peak), gold has only given back 19+%. This shows the strength in gold.

 

Gold first fell to test the December lows in May and then again in June. The recent low coincided with the eurozone's bank rescue package and gold has been quietly rising with higher lows since then.

 

It now looks like gold is ready and poised to move up in a renewed rise. Accumulation time is drawing to a close, but it's still not too late to buy new positions.

 

Gold is promising above $1630, but it'll be clearly out of the woods above its 65-week moving average at $1650. Buying any time this month is good, especially near or below $1600 if possible. Get ready for take off!

 

If gold rises in a pattern similar to the 2006-2008 rise, we could see gold reach record highs near the $2200 - $2400 level.

 

And don't forget silver

It's also time to look at silver's big picture again, because a great buying area is here. If silver continues to hold above $26 and rises back above $28.50, the lows will be in and a renewed rise within the powerful bull market would be underway.

 

Silver has potential to test its old highs, and possibly rise to the top side of the current bull market's channel, once its 65-week moving average is surpassed at $33.

 

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