Jason Kelly

We come now to the question on every investor's mind this weekend: What should I do about the election? Ah, that.

First, let's look at where we stand heading into it. The market went up quite a bit in September, then dropped quite a bit in October, rose last week, and now sits at a crucial testing point as far as the charts go. Most technicians see a drop next week. Here's the headline and teaser from Helene Meisler's column at Realmoney.com:

Get Ready for a Dip After the Election
From a technical standpoint, that's how the market is setting up here.

That would almost certainly be the case if we end up back where we were in 2000 when it took six weeks to figure out who the next president would be. More than anything, the stock market hates uncertainty and few things create greater uncertainty than not knowing who will be president.

But what if a clear winner emerges on Wednesday? Conventional thinking holds that the market would rise on relief. The election cloud would lift and we'd be on our way to a winter rally.

Or would we? It's possible that the president has kept the economic house of cards standing just long enough to look acceptable going into Tuesday. When time's up, the props fall, the market gets a look at the real state of affairs, and the Dow drops. My old friend, Dan Denning at Strategic Investment, summed it up nicely in a note to clients yesterday:

If you believe in the Plunge Protection Team, then you'd be of the opinion that President Bush needs the Dow over 10,000 and a third quarter GDP growing at 3.7% going into next week. Once Monday's behind him...the floor falls out from under the Dow.

What's a person with money to do? In the sage words of the mafia hit man in Dinner Rush, "Keep it."

As in, keep it safe. If you've been following the advice on this site for any length of time, you should already be well-positioned in some cheap stocks and funds. If the market drops considerably, they won't drop as much and they'll benefit more when an uptrend establishes itself. That way, if all goes well next week and stocks line up behind Google on its way past $200 per share, you won't entirely miss out.

Then again, if all does not go well and the flush lever flips to its full downward position, your portfolio won't disappear in the swirl. Instead, you'll be able to pounce on cheaper prices and wait for happier headlines. That's my plan.

Now, let's take a look at last week's suggestions. I bought Maxtor at $3.25 and it promptly dropped to a low of $2.87 last Friday before closing at $2.96. You can now buy shares for about 9% less than I paid, a move that I believe will prove wise in the end, a time frame whose precise definition I'll wisely keep to myself.

I said that it would be a coup to get shares of UTStarcom under $17. It gapped down to about $16.50 last Wednesday and I bought. It closed Friday at $17.12, but I think you'll still be able to buy under $17 sometime next week.

Semiconductors rose last week, but it's not too late to get onboard that train. The election week should give us some volatility and the beauty of investing in a mutual fund, like Profunds Ultra Semiconductor that I mentioned, is that you can time your purchase to happen on a day when the market is down. When you place an order to enter a fund, the money buys at the price upon market close. If the market is dropping, you know the price will be lower. If it's rising, you know the price will be higher. It's not much of an edge, but handy nonetheless. When the bull rushes Wall Street for Christmas, technology will do well and this fund should be at the front of that trend.

I'll close with a note I sent to Peter, who wrote asking if it was time to short Sun Microsystems after its rise from $4 to $4.50 in the past two weeks. Or, he wanted to know, will it rise higher before dropping back down? That is the eternal question. Here's an excerpt from my reply:

You're putting me on the spot with this one. I always feel with Sun that buying below $4 is good and that buying above $5 is too late. So what do I say at $4.50 other than that it could go either way? Not much, so...it could go either way.

I have about half of my money in cash ready to pounce when we can finally get what I expect to be a winter rally going. What I can't tell now is what the election is going to do to the market. I haven't bought yet and can't say for sure when I will. I'm cautious, which means I'd rather wait.

Wish I could be more clear for you, but so much of investing is precisely about this. When things are not clear, don't make moves. When they are clear, do.

Happy Halloween!

Posted by Jason Kelly at 2:58 PM Japan time
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