How to Survive This Stock Market

The bulls are out in full force again following a pause in thestock market. Investors were initially spooked by the fear of interest rates moving higher in the first quarter of 2015, but that appears to have been pushed to the backburner now as the stock market rally reignites.

The thing is there are few real alternatives to the stock market—unless you are happy with the 2.42% yield on the 10-year bond. Personally, I would rather invest in dividend paying stocks.

There’s nothing spectacular about the stock market and economy at this time. Things seem to be moving just enough to warrant buying and optimism in the stock market.

Jobs are being generated at an average 200,000 per month and the unemployment rate is at 6.2%. These are okay metrics, but we need to see higher jobs numbers going forward.

Housing market growth returned some strong readings in July, with both housing starts and building permits growing at an annualized one billion units, which is excellent.

Consumer sentiment is lagging somewhat, but the stock market is simply pleased that the reading has not plummeted.

This seems like a Goldilocks recovery—not too hot, not too cold, but just enough growth.

The stock market has edged higher in six of the past nine sessions with several key technical moves on the upside as of Tuesday.

Blue chips, which have been comatose, are showing some movement, with the DOW back above its 50-day moving average (MA) and returning to the positive side for this year. As we move ahead, the DOW will likely take another run at 17,000, which has been broken on four previous tries but has failed to hold. A fifth failure would set off warning signs.

The S&P 500 is eyeing 2,000, which has yet to be broken by the index, though it has come within seven points previously.

The big moves in the stock market in August have been the return to the risk side, as the NASDAQ and Russell 2000 are up 3.6% and 3.5%, respectively, as of Tuesday. This move suggests investors are seeking risk-adjusted returns again.

Small-cap stocks have fared well over the past two weeks as investors are buying on the weakness; albeit, I feel the risk is still prevalent with the higher-beta growth segment. The Russell 2000 has retraced both its 50-day and 200-day MAs. The index is lagging this year, down 0.14%.

Technology and growth are currently leading the broader market with an 8.39% advance in the NASDAQ. We could be setting up for more gains, too, as the NASDAQ just broke out of a triple-top channel. The question is whether or not it can hold up, especially given the neutral investor sentiment and relatively light volume on up days.

At this point, I doubt I would be adding to my holdings, but I would look at taking some money off the table, especially on the growth and small-cap sides.

In addition, I would suggest you consider adding some put options on large positions or on the key stock market indices that reflect the focus of your holdings. These could include puts on the PowerShares QQQ (NASDAQ/QQQ) and the iShares Russell 2000 (NYSEArca/IWM). Aggressive bets to the downside could be achieved via an exchange-traded fund (ETF) like the Direxion Daily Technology Bear 3X Shares (NASDAQ/TECS), which is safer than shorting stocks.