Terry's Question: Growth in a Bear Market

Good morning!

Terry asked a very good question recently. He wanted to know possible growth areas in a Bear Market. During the 2000 - 2002 Bear Market, I did not have much luck with growth areas. It was my experience that the vast majority of stocks went down as the general market went down. There were exceptions but it was more a matter of timing the entry to coincide with a major bottom in the market like 9-11. For example, take the former high flyer, Juniper Networks (JNPR). JNPR was one of the best growth stocks in the market before March 2000. Then, it collapsed like everything else during the 2000-2002 Bear Market. However, it was possible to earn 70-fold on your money with the purchase of October 20 calls at the end of September 2001.

But let's assume that you want to profit over the long haul between now and say October/November. One growth sector would be foreign currencies, particularly the Swiss Franc. There is a fund, symbol (FXF), that allows retail investors to benefit from the strong up trend in the Swiss Franc. I would suggest an initial stop loss @ 112.0. Take the attitude that you will likely be right because the trend is up, however, you are out without regret if you are wrong. That's the mental approach for making money. Let the profits run. Cut losses to a minimum.

The next growth sector for this Bear Market would be precious metals. There are funds that allow the retail investor to profit from the strong up trends in gold and silver. For gold, the best fund would be symbol GLD. Buy @ the 50-day moving average. Place a stop loss @ 142. This trade would be a high probability trade. I wouldn't lose sleep over an investment in GLD. When it comes to silver, the correction is not over. We need a lower low before I would suggest a good time to buy. By the way, the best fund to trade silver would be symbol SLV. Aim for the January 2011 lows as a good entry level. Place your stop loss @ 24.99. If I am right, the stop loss should be not be touched. If the stop loss is touched, then you wouldn't want to be in silver in any event.

A final sector would be public utilities. For my money, the best stock would be El Paso Corporation (EP). The up trend is strong. I would buy now with a stop loss @ 17.99. EP is a high probability trade. EP is one of the top trading vehicles in public utilities.

Now, there are probably other opportunities out there in this Bear Market for profit. It would take alot of work and research to identity the opportunities. It would literally mean reviewing the chart patterns of hundreds of stocks for strong up trends. (Maybe, I should start a subscription service for a fee/smile. Maybe later this year....)

Anyway, Terry, these are my thoughts. You raised a good question and I hope everyone benefitted from my answer. My goal for the TSP Club is beating the S&P 500 Index for the year. As you are beginning to see, it won't be that hard to outperform the S&P 500 Index if the down trend continues into October/November. And yet only a small minority of professional money managers beat the S&P 500 Index year after year. Maybe, I should have been a Hedge Fund manager.

Have a good day! I will be watching the market today to see if the symmetrical triangle can keep it together. We are truly in the sweet spot. We are out of the market and can watch from the sidelines as any Black Swan events are to the downside.

Wink

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