Wednesday, February 28, 2007

Market Pullback: Now What?

After yesterday's correction the U.S. market indices have the following approximate 12-month returns:

  • Dow Jones Industrial Average = 10.4%
  • S&P 500 Index= 8.5%
  • NASDAQ Index=5.3%
A lot of commentary is being bantered around on the various "technical" market indicators due to the 400+ drop in the DJIA and the 9% decline in the Chinese market. Let me first say it is important to evaluate the various technical indicators, but they should not be the only factors reviewed in ones investment decision process. If these various indicators were such great forecasting tools, then all investors were out of the market by the end of last week?

What is one to make of these indicators: Advance/Decline Line, ARMS index, VIX ratio, closing tick, put/call ratio, just to name a few. If you are not asking yourself about the value and meaning of these indicators--that is okay. What a high quality dividend growth investor needs to do at this point is not panic. Take this opportunity to review the investment portfolio to determine if the overall asset allocation is correct. Secondly, review individual holdings to determine whether there are stocks that have declined in value; thus, making them potentially good investments at these lower price levels. Below is a list of a few of the Dividend Aristocrats that have the worst 3-month total return.

(click on table for larger image)

worst performing dividend aristocrats February 27, 2007
At the time of this writing, the Asia/Pacific market are lower by about 3%. A summary of the indices can be found here. If the foreign markets end lower, there is a fairly high likelihood the U.S. markets will be weak on Wednesday, at least in the morning.

Now links to some of those indicators:

No comments :