Time To Own Dividend Stocks

Most investors have heard the story many times that the best time to own stocks is the six month period of November through April.  I agree with this historical pattern.  Another way to know when you should be invested is by comparing the charts of 7-10 year bonds (IEF) and SSO, the leveraged S&P 500 ETF.  As you can see in the chart below from Google Finance, SSO crossed over IEF in early January signaling a huge upside for the stock market.

Unfortunately, the best time of the year for owning growth stocks has now past.  There is still high interest in the stock market since 10 year treasury bonds are now selling for less than 2% yield.  Most people are going to put their money where it will earn the best return.  However, the good times for stocks will not last forever.  We are now entering the six month period of May through October when stocks are most volatile.  If you want to play it safe, you could own a couple of high dividend REIT stocks during this time.  AGNC is paying more than 16%, and ARR is paying more than 17%.

Stock Market Trading Range

Most of the gains for the stock market have already been made this year. It will probably be a see-saw battle between the bulls and the bears from April through the November election. Bad news will surface from time to time that will send the market down. Then, through continual inflows from 401K funds, the bulls will eventually restore order again for a while since the money will need to go somewhere.

In this type of environment, a trader can always make money based on whether or not there is volatility in the stock market. If the market is calm, then XIV, an inverse volatility fund can be bought at around $10, and it could be sold at $12 or $13. The profit will need to be taken quickly because it will not last.

Then, for the downside of stocks, TVIX, a leveraged volatility fund could be bought. You could buy it at $8 or lower and sell it when it gets to $9.50 or higher. Then, hang onto the cash until the stock market pulls back again several weeks later. In this way, you can most likely make double or triple digit returns over the rest of the year based on whether the market is acting like a bull or a bear.

Market Correction Is Here

After an unbelievable stock market run over the last several months, it looks like stocks will finally see some downside for a change. The depth of the downturn will probably depend on whether the economy will show more improvements. Selling has already started ahead of May this year because the stock market has experienced such a long uptrend. TVIX, the leveraged volatility exchange traded fund, will probably be profitable for a while as we move into the summer. Be certain to take profits when you are ahead, though.

Several market indicators point to a downturn in addition to the normal summer pullback. One of these indicators is the New York Stock Exchange summation index. The chart has been going down since February while the Dow 30 kept making new highs. This wide divergence between large caps and all other stocks could not last forever. The strong stocks can carry everybody else for a while, but eventually the large caps go down also. It looked like the Dow 30 finally started going down this past week. The million dollar question is how far the stock market will fall. Stay tuned and be careful about owning stocks for the next few months.