By: Thomas Aspray

Senior Editor, MoneyShow.com

Friday’s drop may be the first clear sign of a full-fledged summer correction. While a sell-off will create buying opportunities over time, investors need to act now and tune up their portfolios. MoneyShow’s Tom Aspray offers this short list of strategies that will allow you to weather the summer while keeping you ready for the next move up.

It has been a very volatile week in many world markets. While much of the attention has been focused on the 5.7% drop in the Nikkei-225 last week, many overlook that the total loss has been closer to 9% in just the past two weeks.

The US stock market looked ready to close the week with slight gains, but then the selling started to pick up just two hours before the close. The selling was very violent in the last 30 minutes, and the Dow lost another 100 points, while the S&P futures dropped more than 15 points.

This was the sharply lower close that I have been warning would signal a start of a full-fledged correction. It has caused the daily technical studies to turn more negative; up until lunchtime, only the NYSE Advance/Decline line actually looked negative. Both the Dow Industrials and the S&P 500 closed below the prior week’s lows.

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An equally important development last week was in the bond market. The weekly chart of the T-Bond yields has completed its reverse head-and-shoulders bottom formation .

As I noted in last week’s Eyes on Income. this indicated that yields could rise from their current level of 3.3% to 4%, which is the upside target from the formation. To complete a similar formation on the ten-year T-Note yield chart, the yield would have to close above 2.39%.

This is already being felt by many bondholders. The chart of the Vanguard Total Bond Market Index (VBMFX ), with assets of over $116 billion, also completed its head-and-shoulders top, having gapped below its neckline last week. This fund yields 2.47%, but is already down 3.2% from the July 2012 high of $11.25.

The downside target from the H&S top is in the $10.60 to $10.65 area. Even though the weekly trend is now toward higher yields, it would a very large rise before one could conclude that the 30-plus-year bull market in bonds is really over.

The decline in the junk-bond market has been even more serious. The spread between junk-bond yields and Treasuries has risen sharply, which does not normally occur when Treasury yields rise. In a Wall Street Journal article, they note, the trading price of a bond issued by Caesars Entertainment [CZR ] has dropped 6.7% in just the past eight days.

The flow of money into bond funds this year has been huge, with $187 billion issued so far this year. In January, my analysis of this market, Don’t Buy The Junk. suggested that this market should be avoided.

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Emerging markets have also had a tough 2013, and most are lower for the year. Latin America has been hit especially hard. The chart above shows that the region’s exports to China have dropped steadily since 2010.

Brazil is fighting a weak economy, and their central bank has raised rates to fight inflation. The GDPs of Brazil, Mexico, and Chile are lower in the first quarter of 2013 than they were in the last quarter of 2012.

Though euro concerns have been on the back burner recently, the data for some countries is troubling. Portugal is the latest country where leaving the Eurozone is being discussed. I do expect some negative news from the region to rattle the markets this summer.

In the conclusion of this article, I will suggest four steps you should consider taking to help your portfolio weather the summer months and allow you to relax during your vacation time.

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