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The market took a step back this week, as Tuesday’s big selloff dropped the Nasdaq and small-cap indexes below their 50-day lines, and pushed other indexes further away from their 50-day lines.

You don’t buy stocks planning that they’ll lose value, but here are five steps to protect your portfolio in case they do.

The market remains in pullback mode, with the major indexes topping in mid-April and steadily slipping since then. The Nasdaq has, by far, fared the worst, falling about 5.5% and trading below its 50-day moving average for the most of the past week.

We’ve grown incrementally more bullish in recent days for three reasons, and we’ll probably bump up our Market Monitor another notch on Monday; the way we run our portfolio, something in the 65% to 70% invested range makes sense at this point.

The market’s had a solid week, with most of the major indexes reaching new high ground, including the Dow Industrials’ much-hyped push above the 20,000 level. Better yet, we’ve seen many individual stocks resume their post-election uptrends in powerful fashion, often on big volume.

One of our stocks moves from Hold to Buy, and moves from the Buy Low Opportunities Portfolio into the Growth & Income Portfolio; another stock moves from Strong Buy to Buy.

The market as a whole is looking healthier, though there are still symptoms of a broad unfolding market top. But our stocks look healthy and all have the potential to move higher from here, so the only change in our portfolio today is the downgrade of DKNG to Hold.

As for today’s recommendation, it’s a company with a great growth story (in the insurance industry) that just came public last May.



Details inside.

According to credit rating agency Moody’s, debt obligations of the United States federal government are “judged to be of the highest quality, subject to the lowest level of credit risk” and thus are worthy of a “AAA” credit rating.

The other two major credit rating agencies, Standard & Poor’s and Fitch, disagree. These firms place an “AA+” rating on federal debt. For its part, Moody’s is not fully convinced of its AAA rating, as it recently added a “negative” label, implying that the rating is no longer “stable.”

If you’ve been listening to our warnings about risk control over the past month, you were probably able to minimize the damage.

Dividend reinvestment is one of the most powerful weapons in the income investor’s toolbox.

Alternative Asset Managers KKR (KKR) & Ares Management (ARES) are doing something interesting. They are making one profound change that you can profit from.

Another simple system I use to buy and sell stocks is based on earnings momentum and earnings revisions.

Stop me if you have heard this before, but inflation data and the moves in the bond market continue to be the major drivers of the market’s moves. And last week traders weren’t thrilled with these inputs as the S&P 500 fell by 1%, the Dow gained 0.5% and the Nasdaq continued its recent weakness with a further decline of 2%.

Stick with a lean-bullish stance as we wait for the market to show its hand. Our Cabot Trend Lines and Two-Second Indicator are still bullish, but our Cabot Tides remain effectively neutral, and until that changes, stocks and indexes will see lots of choppy action. In the Model Portfolio, we’re sticking with our current 30% in cash and our crop of seven stocks.

The speed and magnitude of changes in securities prices in the past 5½ months has been breathtaking. A quick recap: S&P500 down 20%, Nasdaq Composite down 31%, dozens of former mega-cap, hyper-growth tech stocks down 75%, investment-grade corporate bond prices down 16%, crude oil up 62% and the U.S. dollar index up 9%.

The title of today’s issue is “Don’t Overreact”—the major trend of the market is still up, and there are many signs pointing to higher prices in the months ahead. Chloe adds a new stock to the Safe Income Tier and presents her view on the forces affecting interest rates and income investments today.