The stock market has experienced the perfect storm of bullishness in 2013.#-ad_banner-#

The Dow Jones Industrial Average is making new all-time highs, surging more than 9% within the first three months of the year. Meanwhile, the broad market barometer known as the S&P 500 has pushed within 20 points of the all-time high of 1,565 reached back on Oct. 9, 2007.

The market rally is being fueled by an ideal combination of the Federal Reserve’s quantitative easing measures mixed with improved housing numbers and employment data.

However, no matter how bullish things appear, markets never rise in a straight line. There are always pullbacks, negative news and other bumps in the road.

Knowing this fact, the question is, are you prepared for the inevitable pullback?

While no one knows for certain when the rally will falter, there are definitive signs of a short-term top starting to develop.

First, there is the seasonality issue. As I said here, the “March effect” may present another market sell-off.

In addition, interest rates are slowly starting to tick higher in the bond market. Recently, the price of the 10-year Treasury note fell 16/32 to 100 2/32, and its yield climbed to 2%. And as noted pundit Nouriel Roubini says, President Barack Obama’s tax increases are going to severely affect spending in the second half of the year, resulting in a steep stock market decline.

Finally, the CBOE Volatility Index (VIX) is below its long-term support on the weekly chart, as you can see below. Also known as the “fear index,” the VIX measures the expected volatility in the market based on S&P 500 option contracts. The VIX moves inversely with the stock market. In other words, when stocks go up, the VIX index drops and vice-versa. With the VIX trading below its technical support of the past three years, an upward move seems overdue. This move will correspond with a drop in the equity markets.

Fortunately, there are ways to prepare your investment portfolio for the inevitable decline while maintaining exposure to the stock market.

One way is by switching your stock holdings into low-beta, which measures the volatility of a stock. The lower the stock’s beta, the lower the risk compared to the broader market. Consumer staples and utilities are considered low-beta investments.

As soon as the public catches on that the bull run has faltered, there will be a race to the safety of these types of investments, pushing them even higher. They provide safety as well as growth potential. 

However, I like the convenience, built-in diversification and professional design of exchange-traded funds (ETFs) better.

Here are two ETFs to help you get started building a low-beta portfolio to help weather and even profit from the pending stock market drop.

Risks to Consider: The stock market has inherent risk. No one knows the future and anything can happen. However, a well-diversified portfolio including unexpected low-beta, stocks has been proven to build wealth over time.

Action to take –> XPH and FRN are wise investments for those building a portfolio that will weather any market storm. XPH is a mass sense as a momentum play with lower beta than the broad market. It is obviously correlated to the U.S. markets, so it will benefit should the bull market continue, yet provide a margin of safety due to its lower beta. FRN should be used as a choice for those seeking safety away from the likely pending dip in the U.S. markets.