Finding A Foothold On The Wall Of Worry [iShares Russell 2000 Index (ETF), iShares Trust, Cambria ETF Trust]

Wall streetDavid Fabian: It never ceases to amaze me how quickly stocks shrug off a potentially disastrous situation and turn it into a positive slingshot of additional strength.  The quick spike in tension between Ukraine and Russia has seemingly eased which catapulted stocks to new highs.  In fact, high beta equities such as the iShares Russell 2000 ETF (NYSEARCA:IWM) rocketed nearly 3% higher on Tuesday after the perception that calmer heads have prevailed.

This type of momentum and broad-based strength is very telling for a bull market that has overcome many instances of worrisome headlines that seek to derail higher prices.

Nearly every major stock index is breaking out to a new all-time high this week, with IWM leading the way.  The one exception is mega-cap stocks as measured by the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), which have lagged since the beginning of the year.

Where the ultimate top will be is anyone’s guess from here, but right now equities are telling us that there is still room for additional upside despite high valuations and global-macro confluences.

The market can climb a wall of worry better than any other mechanism for generating wealth because prices are driven by investors whose psychological reactions don’t always coincide with reasonable prudence or doubt. It can also fall out of bed when everything seems rosy.

For most investors, this is probably a point where people are extremely divided between euphoria and cynicism.  If you have been long stocks then you are likely continuing to pursue higher prices with the intent of riding the wave for as long as it will last.

However, those that have missed the rally are skeptical about further upside and worried about putting money to work at all-time highs.  Fear of a quick correction eating into your hard earned nest egg is a powerful motivator to sit on the sidelines.

So how do you find a foothold for stability as the market continues to climb a wall of worry?

The first step is putting aside a bullish or bearish bias and looking at your situation from an objective standpoint.  You need to be thinking about putting money to work in areas of the market that offer attractive risk to reward setups with strong fundamental arguments for higher prices.

In addition, I always find it helpful to pair equity, fixed-income, and alternative strategies that can help offset volatility in the event that the market turns lower.

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