2 Reasons Not to Go to the Mattresses

Today’s headline is not a mafia reference but rather the one related to money stashing in times of turmoil.

Whether or not we have entered an official bear market in stocks is still up for debate but things are not looking good. What about bonds? Well, a virtual bomb was dropped last week in the fixed income world as Bill Gross left Pimco. Investors withdrew a record $23.5 billion!

So where are we to put our money, a mattress, or buried in a coffee can in the back yard? Let’s not go that far yet. There are two big reasons to stay in your core-satellite portfolio and keep trading, albeit more selectively, and investing.

First, for the trade part, the VIX is on the rise. This is good news for traders. The chart below illustrates the 45% rise in the VIX over the last 6 weeks or so.

3-Month Volatility S&P 500 (VIX)

(Source: Yahoo! Finance)

Seasonality, valuation, momentum, and technical analysis will be critical in trying to pick out winners for losers for the short term trade.

For the longer term one only needs look at the calendar to realize we are one month away from a mid-term election, which means we are about three months away from officially having a lame duck president. Barring possibly the biggest October surprise since the Cuban missile crises, all indications are that the GOP will retain the House and might take control of the Senate. The following equation sets up, lame duck democrat president plus republican congress equals gridlock. Gridlock can be a great stabilizer for investors as it ensures that no ideological or potentially harmful policy affecting the economy should become law.

With so much to think about it may be time for a drink. Not in the literal sense, but returning to one of our Market Monitor picks as an upcoming seasonality play. Castle Brands, Inc. (NYSE – ROX - $1.28) is up over 7.5% since our feature in early April of this year. It is one of the few stocks that still indicate a very bullish DMA in all durations in our screeners. ROX looks to be in play as an accumulation phase over the last three months has seen the price level rise 22% on an average of 575,000 shares traded per day. We think a rise to $1.65 is entirely possible by the end of the year.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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