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Weekend Wisdom

They say the bull market is over. We hear the reasons everywhere now...

"QE tapering will only continue to send stocks tumbling!"

"Earnings have peaked and GDP is about to stall!"

"Emerging Markets are in crisis and contagion is going to wash ashore!"

"Technical gurus warn the market will unravel 40% to S&P 1100!"

And to that I say "I wouldn't bet on it!"

These are all just wild speculations that ignore the fundamental soundness of the US economy and earnings growth. And even if there are good arguments for one or two of them, there are much better ways to play this correction right now than just selling everything or using your cash to simply buy put options or bearish ETFs.

Let me show you three better pro-active strategies today...


1) For Long-Term Investors

This is a great time to evaluate your portfolio and kick out the dead weight. It's actually critical now because the stocks that are under-performing probably have low-quality earnings momentum. And these names will only be punished more going forward.

Gladly there are still several hundred stocks that will outperform and make new highs in the next 3-6 months. Focus on accumulating shares of those earnings rock-stars while they are on sale.

In short, use the Zacks Rank available for free on Zacks.com to evaluate your portfolio. Quickly say goodbye to sell rated #4 and #5 ranked stocks. Then add more buy rated #1 and #2 ranked stocks, which will be the future winners.

More . . .


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Time to Buy with Both Hands?

The market pullback may resume as early as Monday, and that could spark an exceptional buying opportunity for Zacks' market timing strategy. In 2013's steady market rise, this portfolio quadrupled the average hedge fund with an overall gain of +31.1%. Yet now, by trading 2014's sharper jumps and bumps, the potential for explosive profits is even greater.

Don't miss your chance to see its latest moves in real time for 30 days, along with all of Zacks' other portfolios, for a total cost of $1.

Learn more now >>

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2) For Active Swing Traders

Bull market corrections are also a great time to play the volatility and the fear by scooping up index and sector ETFs when they get way oversold. I made over 30% last year doing this, and I am gearing up for a repeat with even more volatility expected.

I start by using the Zacks Industry Rank and relative strength measures to pick sectors I expect to outperform. Then, if I can get the timing "close enough," I buy leveraged ETFs on those indexes and strong sectors to multiply the swing trading gains by double -- and even triple. This allows me to maximize my trading capital.

And it's still not as risky as trading futures or options. Think of it this way: the S&P 500 E-mini futures offers 5X the leverage of the SPY ETF. I think 5X leverage is too risky for swing trading.

That's why I love the dozens of 2X and 3X index and sector ETFs I can use every day -- especially when most of them require much less cash than the $175 per share that it would cost for SPY.

Plus, I have an arsenal of ETFs I can use to play commodities, bonds, currencies, and even other countries. The ways that active swing traders can construct diversified and non-correlated portfolios with the universe of liquid and versatile ETFs are nearly unlimited.


3) For Aggressive Short-Term Traders

But what if the selling starts to get really serious by taking out the lows at S&P 1740 and targeting a cluster of support levels near 1700?

That's where both investors and traders can join me in capturing profits from the big fear-driven drops.

A full correction of at least 10% would take the S&P down toward 1650. Fortunately for my Market Timer trading group, I have a good idea of what will trigger another 100-point drop to 1700, and even a 150-point drop to 1650.

When I see those triggers, I am going to buy a handful of bearish ETFs that will help me capitalize on the volatility and the panic selling. And even a trip to 1650 wouldn't change my mind about this correction just being a normal and healthy bull market event.

Besides, even before the market gets there, I will be constantly reevaluating conditions all the way down, according to a three-pronged approach I use that blends my weekly analysis of the fundamentals, the technicals, and the behavioral aspects of markets.

That last leg of the stool could be summed up as "Are fund managers still net buyers and why?"

Bottom line: I am still looking for a great buying opportunity this quarter where I will turn around in the panic and load up with my favorite bullish ETFs, looking for new highs this year.


And When I Pull the Trigger . . .

You can be there with me, receiving email alerts from our private Zacks Market Timer.

In 2013, this portfolio more than quadrupled the average hedge fund with an overall gain of +31.1%. Yet, for 2014, the profit potential could be even more explosive. Unlike last year's steady bullish climb, we are likely in store for many sharp ups and downs in 2014, and that is what Market Timer is designed to thrive on.

We look to profit from quick swings in industries, sectors and the market as a whole. While cutting losses short, we maximize gains by 2X with a simple Zacks metric and then 3X again with a twist on a common investment move. If that sounds interesting, I encourage you to check it out. You are welcome to follow our moves and commentary for 30 days, along with those of our other 12 Zacks portfolios, at a total cost of $1.

Get details on Zacks Market Timer >>

Good Investing,

Kevin Cook

Kevin, a Senior Stock Strategist at Zacks, is a recognized authority in global markets and renowned for predicting market swings. A former market-maker in the $4-trillion-dollar-a-day world of interbank trade, he developed the ability to track the movement of money, and trained his reflexes to take advantage of it. Today he directs the Zacks Market Timer, providing commentary and recommendations.

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