Last Tuesday, the S&P 500 closed below its 50-day moving average for the first time since December, 2011. A sign of trouble, this came after the markets have pulled back recently, due to factors such as European sovereign debt fears and a sluggish jobs report last week. Wednesday saw a nice rebound, however, as the Dow Jones Industrial Average was up about 100 points and the S&P 500 about 12 points as of 3:00pm. Excellent earnings reports from Alcoa and a positive homebuilding report have helped fuel today's rally.
What does this mean to the individual investor? While stocks are still in positive territory for the year, and many are still near their historical highs, the recent pull-back means there are some bargains to be had.
Remember that nothing has changed in terms of the fundamental keys of successful investing...diversification, buy and hold good dividend-paying companies, buy low and sell high and dollar cost-averaging (among others). This is a good opportunity to dollar cost-average into quality companies that are now a little more attractively priced. This means putting a little money at a time into the market, thus lowering your average cost. It also is a lower risk method of getting participation in a rocky market than dumping all of your money in at once. Companies that I like include Bristol-Myers Squibb (BMY, $32.65.sh., 4.16% dividend), Coca Cola (KO, $72.21/sh., 2.835% dividend) and Intel (INTC, $27.89/sh., 3.01% div.).
The use of quality mutual funds is a great way to get exposure to a large basket of great companies like these with a small sum of money. They are very conducive to setting up an automatic periodic dollar cost-averaging program.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).