There is plenty of advice flying around. The challenge lies in determining the outlook for the broad markets. Visibility is very cloudy and there are plenty of reasons. Slow to recessionary economic outlook, no bottom in housing, financials in disarray, Fed deciding on inflation fighting or growth promotion, earnings expectations are low, etc. The challenge is the list is so long that on any given day we can find plenty of reasons to sell. The last several trading days have shown the swings that occur from a lack of visibility. This leads me to the question of what should we do now?

Believe me if I had the answer to that question I would be on the next flight to the NYSE and trading my heart out! However, I do have a some suggestions. First, protect your money. With the recent volatility and lack of volume in the markets the best offense is a good defense. Keeping money out of harm’s way is the first priority. One of my primary rules of investing is you can make up for lost opportunities, but it’s a lot harder to make up for losses. So introduce yourself to the sector of cash.

Now let’s address some of the sectors in the news. Energy seems to one of those hot topics. If we look at (NYSE: IYE [1]), iShare Oil and Gas ETF, there was a bounce last week to the upside as crude jumped nearly $6 per barrel. Since we have given most of the move back and we are testing the break above $42.50. It is worth watching to see if we can hold the break higher off support. The key is obviously the direction of crude. So far it seems content to hold support near the $110 mark. Be patient here don’t force trades or positions in the sector just because the consensus is oil has to go higher. That was the same consensus that said technology couldn’t drop 70% from the highs in 2000. While you’re watching this sector pay attention as well to the surrounding pieces. (NYSE: UNG [2]) – Natural Gas, (NYSE: USO [3]) – Crude Oil, (NYSE: UHN [4]) – Heating Oil, and (NYSE: TAN [5]) – Solar Energy.  

Small Cap is an index that showed leadership off the lows in July.  (NYSE: IJR [6]), iShare S&P 600 Small Cap ETF, rose more than 12% off the July low. Over the last week it has given back 4% and is trying to maintain some level of support. Why the pullback? Breaking the index down, 12% is financials, 21% is industrials, and 8% is energy. That’s 40% of the weighting for the index and it has struggled during the last week. Thus, the drop in price. The key catalyst for the index is growth. If we don’t show some improved signs of growth looking forward  I would expect a break of support and a test of the July lows. However, if we find some signs of growth the index could break above the May high and continue the short term uptrend. For an update on the Small Cap Index visit our Sector Spotlight [7].

Remember the key to successful investing is having a disciplined strategy for building and managing your portfolio. Stay focused and be patient as the visibility clears.