Are We Headed for a Flat Market?

A week ago, I ran a poll asking readers where they thought the market was headed over the next year. The top response, with 45% of the votes, was that the market would flatten out for a while.

Over the past few years, we've seen the S&P 500 plunge nearly 60% and then bounce back up around 70%. If you've been investing in individual stocks, you may have been whipsawed even more violently as stocks like Teck Resources (NYSE: TCK) and Genworth Financial (NYSE: GNW) were beaten down to near-death prices only to swing back with massive gains.

After all of that craziness, a flattening-out of the market sounds like a nice opportunity for investors to catch their breath.

Flat market? Fat chance!
Unfortunately, a flat market doesn't seem to actually exist in reality. Looking at pretty much any snippet of the S&P 500's chart over the past six decades shows either a positive or negative slope -- never the lack of slope that a truly flat market would imply.

The market has, however, gone through periods where it has been range-bound. During these stretches, it has essentially bounced up and down within a range, constantly in motion, but going nowhere. And there's a good argument to be made that we're currently bobbing around in one of these range-bound periods.

Travelling without moving
Even for someone like me, who isn't at all into charts and market mechanics, it's hard to miss the fitful pattern that the market has followed over the past century or so. Essentially, we've seen periods where it advances quickly, benefitting from growth and valuations advancing from low to high. It's then entered extended spans of range-bound pinballing, allowing rising earnings to bring valuations back down to lower levels.

At the beginning of 1980, the 10-year average price-to-earnings ratio of the S&P 500 that Robert Shiller tracks was just below nine. We then watched that multiple rise to more than 44 by the end of 1999. And since then? We've seen two major crashes, a five-year bull run, and whatever you want to call the 70% rebound we're currently experiencing.

Yet with all of that, the S&P's price today is essentially the same as it was in mid-1998.

Considering that Shiller's valuation measure currently rests at 20.6 -- above the long-term average of 16.4 -- there seems to be a pretty solid case that we could see some more range-bound oscillations while the market works its way down to a lower valuation.

Range-bound and staying Foolish
If I could reliably predict the future, a range-bound market would be the perfect opportunity to get rich by buying market dips and selling at the peaks. But alas, I can't, so trying to time the market will likely end up a sucker's game.

If the market is, in fact, stuck bouncing around in a range, it really shouldn't change the approach of long-term, Foolish investors. The best strategy will be the same strategy that folks like Warren Buffett have followed through thick and thin -- that is, find quality companies and invest in them when the price is right.

For those looking to get busy though, here are two suggestions to potentially make the most of a range-bound market.

1. Keep a wish list. If the market does continue to bounce around, you'll want to be ready to take advantage of the dips. One way to do that is to keep a wish list, a compilation of quality companies that you'd love to own if the price was right. Here are a few of the companies currently on my wish list:

Source: Capital IQ, a Standard & Poor's company.

2. Stay alert to current opportunities. Just because we're 70% deep in the market's current upswing doesn't mean that there are no good buys right now, nor that you should be 100% in cash. As I've highlighted, market mavens such as Jeremy Grantham and Barton Biggs believe some of the best opportunities right now lie in large, well-known companies like Johnson & Johnson (NYSE: JNJ) and Cisco (Nasdaq: CSCO).

Do you think we'll be stuck in a range-bound market? If so, what are you doing to make the most of it? Scroll down to the comments section and share your thoughts.

I think dividends are great in any market. Though the recent downturn has been challenging even for dividend payers, Todd Wenning shows how a high-yield portfolio can keep you steady.