Where the Smart Money is Heading Now

Wednesday, November 12, 2014 Where the Smart Money is Heading Now   by Jamie Dlugosch   Where is the smart money going now that stocks have furiously rallied off the mid-October lows?   It's an important question.  The answer is surprising. The market environment is getting more and more difficult to navigate. The professionals are struggling as the individual investors extract a bit of revenge.   Intentional or not, it is the individual that is acting far more rational than those in the know on Wall Street.   But the smart-money folks might have their own time in the spotlight as investors position and prepare for 2015.   We've had multiple attempts to bring the market down in 2014, with each attempt failing.     FURTHER READING   3 ETF Stocks to Buy Now – Yours FREE Renowned analyst Corey Williams, just released his picks for the top 3 ETFs for 2015. Inside, discover which ETFs to buy, why you should buy them, and when you should sell them. It's a comprehensive look into the some of the best ETFs to have in your portfolio for this market environment. Download it FREE here.     The latest was supposed to be marked by the Alibaba (NYSE: BABA) IPO. When the Chinese internet company went public, some speculated that the event would mark the end of the bull market.   And here we are watching Alibaba and its fantastical marketing machine spurring massive sales during what is known in China as Singles Day.   Oh, and Alibaba shares are now solidly above $100 per share and moving higher.   So when we look at the market reversal that began in mid-October, one might think the rally was one of momentum and technology.   Certainly those segments of the market have done very well, but if you want clues to the future, look more closely at the sectors that are leading the market in the fourth quarter.   I know I was surprised to see utilities at the top of the list.   The classic defensive group of stocks has gained 9% since the start of the fourth quarter.   With interest rates staying frustratingly low, it could be that investors are buying utilities not for defense, but for yield.   I suspect it is a combination of both. There is a very strong belief that the economy is weaker than it appears.   That has been a long and wrong running theme over the last couple years and yet there is a strong urge to be defensive.   The top performers in the third quarter go beyond utilities in their defensiveness.   Also doing well are health-care stocks and consumer staples, both up 6% for the quarter.   Those short-term gains are nice, but do not reflect why the smart money is moving to these groups.   They are moving to defensive stocks in preparation for something bad to happen in the market. They want to preserve capital.   Because so much of the smart money is moving into defensive names, prices are going up -- hence the surprising outperformance.   Considering the S&P 500 is up nearly 10% for the year, it is hard to imagine stocks appreciate greatly from here.   Thus it is more than reasonable to position your portfolio for what may be the next in a long line of shaking the trees.   The best way to get that exposure is with exchange-traded funds.   For the utilities, go with the Utilities Select Sector SPDR ETF (NYSE: XLU). For the health care try Health Care Select Sector SPDR ETF (NYSE: XLV). In the consumer staple space consider Consumer Staples Select Sector SPDR ETF (NYSE: XLP).   All three of these funds will give you a defensive position against another potential sharp drop in share prices.   The timing is unknown, but based on 2014, one can expect multiple attempts to bring the market down as we enter 2015.   As such, following the smart money now is probably a good idea.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
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