Thank Goodness September’s Over — What’s Next for October?

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Thank goodness September is over. And thank goodness the quarter is over. But the real question investors are asking is, “Will things get any better from here?”

First, let’s look at the bloodbath that was September:

  • Oil dropped over 10% in September from around $88 to $79 a barrel.
  • Gold fell 10% from around $1,820 to $1,620 per ounce.
  • Blue-chip stocks lost about 6% on the month. The S&P 500 was around 6.7% in the red, the Nasdaq was down 6.2% and the Dow Jones Industrial Average shed 5.6%.

The last three months are even bleaker, save for gold:

  • Oil fell from around $96 to tally a 16% slide.
  • Gold was up from about $1,480 to start July to tally a 9% gain.
  • Blue chips lost around 13% on the quarter, with the Dow off 12.1% since June, the Nasdaq down 13% and the S&P down 14.3%.

Not a pleasant scenario. Adding insult to injury was that the market didn’t just give up its gains in one gut-wrenching slide — nor did we suffer a slow bleed across several weeks. We got a roller-coaster ride in every sense. The chart showed a steep drop right at the beginning, and the momentum of that decline kept the market riding up and down hills for the last month-and-a-half.

What’s Up in October?

InvestorPlace’s chief technical analyst, Sam Collins, warned Friday morning that market support was nonexistent and that the major trend was down, down, down. Trading has seemed to prove this out.

If you are a super-aggressive type and want to bank that we will see more mayhem, consider the iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX). Traders not familiar with this sophisticated investment can read about it at length here, but essentially you are betting on a rise in volatility and the VIX volatility index (or so-called “fear index”) as much as a selloff in the market. And I think we’ll all agree that volatility is pretty crazy right now.

But take care — this is a short-term investment tied to market volatility, so naturally it can jump all over the map. It is not for the faint of heart. Also, take care to bet against the market as we enter earnings season in earnest — a spate of good reports could turn around sentiment in a hurry.

For the long-term buy-and-hold crowd, don’t think that you’re out of luck. While the short term is bleak and volatile, we should not really be surprised to see a contraction. The market had “priced in” economic uncertainty from high unemployment, Greek debt problems and lackluster U.S. growth. The fact that the Dow opened Monday at around 10,800 and went to nearly 11,400 Tuesday should have been a sign that the trouble had been “priced out.”

Ideas for the Buy-and-Hold Crowd

But unless you are planning to hold a stock for just a few weeks or a few days, these sharp selloffs back to the bottom (or near a bottom) are opportunities to buy quality stocks — preferably ones with big dividends — that will hang tough in a difficult market and ride the recovery when it takes shape in a year or two. Or three. Or … well, let’s just say you have to be a true long-term investor to make these bets.

Here are a few ideas along those lines:

Microsoft (NASDAQ:MSFT) is trading at $25 now, at nearly its lowest level since 2009. It pays a 3% dividend, is flush with cash and dominates with Windows. Buy this bargain now and hold it for two years — you’ll be glad you did. I just can’t believe Microsoft will flat-line for another 24 months, but if it does, you get a nice dividend that is bigger than the income from a CD or 10-year T-Note.

AK Steel (NYSE:AKS) is off 60% in 2011 — and yields 3% at this valuation. Yes, it lost money in the first quarter, but it has returned to profitability and is seeing good revenue growth even with soft demand. It is a bit riskier than MSFT, but there also is the potential for serious gains if and when demand for steel firms up on an industrial recovery. And you don’t have to buy an absolute bottom to profit in AKS with its plump dividend — flatlining shares still will pay you 3% a year.

Apple (NASDAQ:AAPL) is not a dividend stock. But it’s off 10% from its recent high and is one of the few true growth stories on Wall Street right now. Buy the dip. What’s more, Apple is gearing up for the iPhone 5 launch and what should be another outrageous earnings report. As IP.com writer Jamie Dlugosch noted last quarter, buying Apple before earnings is like “free money” — AAPL popped 5% in two days or so after its last report, and you can bet your britches it will do so again with earnings and revenue “surprises” this time, too. And if that doesn’t help Apple in a downdraft next month, you can expect brisk holiday sales and strong numbers going forward for the next few quarters will. Worst-case scenario: Apple gets back to its previous high around $420 by year’s end, delivering a 10% gain in three months. I think most folks would take a trade like that to the bank after this ugly quarter.

One final note: I wrote this week that 300-point swings in the Dow mean nothing. I didn’t mean that real money wasn’t made or lost in these swings — but that the volatility of the market will giveth and taketh away quickly. If you are a trader, it’s crucial to keep your eyes on the ball right now and ride the sentiment before things change.

But if you’re a buy-and-hold investor, there still are opportunities even in a down market.

Jeff Reeves is the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the aforementioned stocks. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/september-october-ak-steel-microsoft-apple/.

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