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Playing the Stock Market Correction: Our Analysts Weigh In

It seems the long-feared stock market correction has arrived. What should you do now that stocks are retracting? Here’s what our analysts are saying.

It seemed like we might be out of the woods. After the steep stock market correction in early February, the S&P 500, the Dow and the Nasdaq slowly recovered most of those losses, with volatility all but evaporating. Then, in the second half of March, all hell broke loose again, and it’s been a roller coaster ride ever since.

Earlier this week, the S&P 500 re-tested February lows, holding support at 2,581, barely. Volatility isn’t as high as it was in early February, at least not according to the CBOE Volatility Index (VIX). But with readings still hovering near 20, the VIX is still more than double what it was for most of January (and nearly all of last year).

So what should you do? Panic and sell out of all your positions? Not yet. But it’s certainly worth taking a closer look at your portfolio, perhaps weeding out some of your weaker performers.

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For more comprehensive advice on what to do in the midst of the second leg of this February-through-April stock market correction, however, I’ll defer to some of my colleagues. Here are a few excerpts of what our advisors are telling their subscribers to do now that there’s so much uncertainty out there:

Mike Cintolo, Chief Analyst, Cabot Growth Investor

“Our measure of the market’s longer-term trend (Cabot Trend Lines) is still bullish, though admittedly the next week and a half will be key. And we continue to see the broad market show some subtle resilience; even considering the recent dip, the number of stocks hitting new lows has been far fewer on both the NYSE and Nasdaq compared to the February lows.

“All told, though, most of the evidence remains negative, so we advise sticking with a cautious stance—holding plenty of cash, keeping new buying to a minimum and watching your remaining positions closely.

“The daily headlines are catching everyone’s attention, especially the trade battle with China, causing many to wonder and speculate how bad this ‘trade war’ might get. We’ll let others guess at that—just remember that investing based on the news is a very bad idea. The news doesn’t lead the market, it lags it. So keep your focus on the action of the market and leading stocks.”

Jacob Mintz, Chief Analyst, Cabot Options Trader

“I am not classifying the current environment as a bear market. Instead, I would call it extremely treacherous and volatile.”

Tim Lutts, President and Chief Investing Strategist, Cabot Wealth Network

“Short term, a bounce from here would be quite normal, though longer term, further weakness cannot be ruled out. But we don’t need to know where the market is going. We only need to know what it’s doing now—and watch carefully what our own stocks are doing—and react appropriately.”

Chloe Lutts Jensen, Chief Analyst, Cabot Dividend Investor

“While you wait for the trend to turn back up, you should be reducing risk and honing a watch list of stocks that are still behaving well.

“It’s not all doom and gloom. Some of our stocks are actually benefitting from the return of market volatility, like utilities, REITs and select financials.”

Bottom Line on the Stock Market Correction

Like Chloe said, it’s not all doom and gloom. Lower-risk pockets of the stock market are holding up well. I highly recommend Nancy Zambell’s story from earlier this week on “5 Low-Beta Stocks for a High-Risk Market.” You can still make money as you ride out the current stock market correction.

My best advice? Listen to what our advisors are saying. If you want the best advice on how to navigate the choppy stock market waters, click here.


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .