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Strategy in the Times of Extreme Selloffs

We're spacing out our buys and making smaller buys.
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This Alert is an update on the broader-market action we've seen this week and we're not recommending any trades for the model portfolio.

U.S. stocks have experienced rising volatility in the past couple of weeks and there's no denying the most extreme action has been in the small-cap and low-dollar arena. The Russell 2000 index, the benchmark of the model portfolio has lost at least 1% in 10 of the past 23 trading sessions and fallen 9.66% over that period.

The selling was most extreme today, when the Russell 2000 fell 2.7%, which was the worst daily performance in six months. We responded to today's decline by making three purchases for the model portfolio.

This reaction should come as little surprise to anyone that's been following our trading activity the past few weeks. We've made 22 purchases for the model portfolio since Sept. 11, including initiating a position in Sonus Networks SONS- compared to just one sale.

Our general strategy is to buy weakness and sell strength and we had a sizable cash position before this selloff began. The only change we've made in recent weeks is that we're spacing out our purchases more and making smaller buys each time. We've been slowly, but consistently putting some of those funds to work and still have around 15% of the model portfolio in cash.

We'll continue to put that war chest to work into quality One- and Two-rated names if the market provides us with the opportunity. For example, Atmel (ATML) fell 6% today, to close at $7.47 a share.

The stock is now down 23% from its 52-week, high and currently changing hands at just 12x expected full-year earnings. At the same time, Atmel is expected to grow earnings 52% this year and 46% in 2015. Large or small, that's a buying opportunity that most investors would not pass up in a more rational trading environment.

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