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You Can Make Money Buying Stocks in a Bear Market

By Jeff Clark
Tuesday, January 22, 2008

Researchers say yesterday was the most depressing day of the year.
 
The combination of bad weather, credit-card bills, and broken New Year's resolutions designate the Monday that starts the final full week of January as "Blue Monday." Today, we can add falling stock prices to the list.
 
Global markets all lost between 4% and 7% yesterday as fears of a U.S. recession panicked investors overseas. And if the futures markets are any real indication of what we'll see when the U.S. opens for business this morning, then today is going to be pretty depressing as well.
 
Not all hope is lost, however. Even if this turns out to be the beginning of a full-fledged bear market – and that certainly appears to be the case – investors can still make money as long as they focus on the right sectors.
 
Oftentimes, the sectors that perform best in a bear market are those same sectors that performed the worst during the previous year. Consider homebuilding stocks for example.
 
Back in 1999, housing stocks declined about 10%-15% on average while the broad-based stock market averages soared to new highs. But when the bear took over Wall Street in 2000, housing stocks started to rally.
 
Shares of TOL basically tripled when the bear came to town in mid-2000 up until mid-2002. So even though the broad-based stock indexes declined sharply during that time, investors did quite well in the housing sector.
 
It's not any different this time.
 
Homebuilding stocks were the worst performers in the market last year. But last week, as every other sector was being torn apart by the paws of a giant grizzly bear, housing stocks managed to rally. In fact, homebuilders – as measured by the homebuilders index exchange traded fund (XHB) – rallied more than 3%.
 
That's a good sign for housing stocks. And it's a good sign for a few of the other sectors that underperformed the market last year.
 
Best regards and good trading,
 
Jeff Clark




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Market Notes
Top Performing ETFs (past 12 months)
Claymore Oil (UCR) +61%
 
iShares Brazil (EWZ) +55%
 
PowerShares Energy (DBE) +48%
 
iShares China 25 (FXI) +47%
 
iPath Commodities (GSP) +42%
 
Worst Performing ETFs (past 12 months)
iShares Home Construction (ITB) -64%
 
SPDR Homebuilders (XHB) -54%
 
streetTRACKS Regional Banks (KRE) -35%
 
iShares Real Estate (IYR) -32%
 
PowerShares Retail (PMR) -32%
 
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%