Buying Opportunity on Horizon? Probably - but where?

by Wayne Ferbert on June 24th, 2013

For the long-term investor, these pull backs should always be viewed as a good thing. They are a chance to buy – especially in the most depressed sectors and categories.
 
A friend of this blog was on CNBC this morning – Joe Moglia, the Chairman of TD Ameritrade. He was asked whether this was a buying opportunity and he nailed it – of course it is. The long-term fundamentals look good for our US economy so these pull backs just represent the re-allocation of capital.
 
Here is the link to Joe’s roundtable discussion. It is worth a view.
 
But the idea of buying on this dip begs a question: are we buying on the US dip? Or are we buying on the International dip? That is the ‘where’ question – as in where to put your money?
 
US markets have pulled back precipitously in the last 10 days – and they are dropping even lower this morning. But the US equity indexes are still closer to all time highs than the 2012 lows – by a 2-to-1 point margin. As dips go, this one might be a buying opportunity – but I would be patient. And if you are hedged around the 1550 level in the S&P500 like we have been promoting, then all is good anyway.
 
But the International markets are still another story. The International markets are re-testing the lows from August-October 2011. Remember the International markets crisis from late Summer 2011? The EEM is re-testing those levels – and looks like a promising entry point is near us. China in particular is pulling the index down. The China indexes are re-testing the Fall 2011 lows.
 
The fear you should have: are you trying to catch a falling knife? So, we recommend that instead of ‘waiting’ that you ‘wade’ in to the International positions. By wade, we mean to dip your toe in the water. For instance, maybe put 1/5th of the investment to work, sell puts on 1/5th of the position to force even lower entries, and keep 3/5th in cash. Then, wait with the 3/5ths cash for potentially even lower entry levels.
 
Because you only have 2/5ths of the investment total exposed, consider not hedging the position at all until you start to put the other 3/5ths to work. That much cash is hedge enough for now.
 
The EEM and the FXI are the International ETFs that we like the most – despite the debt crisis. 


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