Wait It Out

 | Jan 24, 2014 | 12:47 PM EST
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So, do you blow up your year and buy the high-quality industrials that are levered to China now that they are giving them away?

Or do you go for some short-term performance and buy the recession stocks as my day-two playbook suggests?

Ideally, right now, you should be coming in with everything you have and buying Clorox (CLX), Procter & Gamble (PG) and Johnson & Johnson (JNJ) and Bristol-Myers Squibb (BMY) -- yes, even up here.

You should still be shorting all of the industrials, pressing hard and betting that the analysts capitulate and throw them out on the China worries and the emerging market issues.

They almost always capitulate in the end. 

But there's one problem: You just might have to reverse everything on a dime within the next three days.

So my suggestion is to circle the wagons around the industrials you can handle and take that additional cash and buy the Johnson & Johnsons of the world that are on the 3% yield precipice and haven't moved up yet.

At the same time, though, on Monday I think you have to be ready to buy the downgrades of these industrials that would have shed far more than we ever thought they could just a few days ago.

Remember the game plan: day one (yesterday), they all go down; day two, they differentiate, and buy the bond market equivalents and the recession-proofs; day three, they wade back into the companies that just reported great quarters -- that's Monday -- and you cover your industrial shorts. (Looks like Doug is a day ahead of me!)

Only by Tuesday -- yes, the cycles are that compressed -- can you buy the stocks of the very companies that are doing well. Painful, but you do have to wait. Don't worry. You will get your chance!

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