Navigating the market these days feels like walking a tightrope. One day the market is ebullient because wages are rising and productivity is improving, and the next it’s sinking into the doldrums. Retailers, buried after reporting dismal holiday sales and earnings, soar 24 hours later on take-over scuttlebutt. Drug stocks, solidly bouncing from enthusiastic value buying, get tanked shortly afterward when President Trump rails about high prices.

What’s an investor to do? I find it best to sit tight when the market is frantically trying to restore balance, but be ready to strike.

I have a list of stocks that I’d like to buy once I see better valuations. Of the hundred or so stocks that I review each week for purchase, the majority are selling with price-to-earnings ratios that are higher than their growth rates. This ratio, often called the PEG ratio (price-earnings to growth), is one of my favorite measures for finding value. If a stock is trading with a PEG well above 1, the risk of a steep fall from any problem is magnified.

Options Hits and Misses

The flip side is waiting for the best entry point for some of the bearish put positions that I’m mulling over. Buying options just one or two weeks too early can wipe out an entire position.

We closed out a very profitable call position in drugmaker Novartis just in the nick of time. The January 72.5 calls were held for just 14 trading days and delivered a 75% gain. I was wondering, greedily, if I should have held onto them when the stock traded above $74, only to see the price wilt to $72 on the president’s threats of pricing pressure.

Unfortunately, I bought the Mylan call too early, and it is unlikely to rise before expiration on Jan. 20. Way back in September, I made a call that the drug stocks were getting unfairly punished and that Mylan, which was slammed for its price increases on the EpiPen, would rise by late January. Instead, the company became the poster child for price hikes, and the stock just recently showed some sign of life.

I feel quite good about the bearish position on Caterpillar, entered in late December. This is a prediction that the company will miss fourth-quarter earnings based on management’s recent backpedalling and weak sales of used equipment by auction houses.

Options, of course, are a tricky business, and some of mine have gone bust—that’s always a risk. But my options calls netted, on average, 32% last year.

Earnings Season

On the stock front we have one or two names that will report earnings before the next newsletter, but, of course, we’ll be covering the news in alerts and in my weekly newsletter. Most public companies have a fiscal year that ends in December. Fourth-quarter earnings typically get increased attention from auditors and often take longer to process than interim quarters.  So far, just Brunswick (NYSE: BC) and PayPal, where I have a call position, have announced they will report before the end of January.

I expect we may see volatility in the building and industrial stocks this quarter. This group has enjoyed a healthy run since the election. Most have risen on hopes of increased funding for federal projects but might sell off as reality sets in.

Acuity, for example, reported a less-than-expected quarter. The industrial-lighting company called out weakness from small building customers who are postponing construction projects until they have more clarity on President Trump’s fiscal plans. Gypsum (NYSE: GMS), Masonite (NSDQ: DOOR), Vulcan (NYSE: VMC), U.S. Concrete (NSDQ: USCR) and Acuity Brands (NYSE: AYI) are all tied to spending on infrastructure or buildings. My bets on Vulcan and U.S. Concrete do not depend on further awards for municipal spending, but poor weather, which slows the laying down of roads and building foundations, is already producing erratic numbers for these companies. I don’t expect any softness in residential homebuilding, which is still filling unmet demand.

The balance of the portfolio consists of truly stock-specific stories with catalysts to move earnings (and share prices) higher. Profit Catalyst Alert’s newest addition is Carbonite (NSDQ: CARB). With a market cap of just $400 million, it’s the smallest stock in the portfolio and has room to run based on demand from small businesses for its data backup and recovery service. I closed out Apogee Enterprises, a legacy Growth Stock Strategist position, for a rousing 36% gain. I’ll be looking for more trades on that stock in the future.

One thing is for sure, as I noted in my 2017 forecast in Investing Daily’s Personal Finance, I expect the stock market to be rocky this year. Amidst the whipsaw initiated by overdone expectations, abandoned stocks and nonstop presidential tweets, I expect to find many profitable opportunities this year.