All signs point to an imminent, violent and downward move in the stock market. Fortunately, as a reader of "Marko's Take", not only can you AVOID it, but you can BENEFIT from it!
First, let's go through the reasoning. The Dow Jones Industrial Average (Dow), recently broke a very reliable chart pattern known as a "rising wedge" or "bearish wedge". This pattern is characterized by a series of higher highs and higher lows, but the pattern of highs and lows eventually cross, forming an upward sloping triangular shape, or "wedge".
As the market moves to the apex, or point of crossing, it can only do one of two things - break up or break down. Normally, these patterns break down and when they do, it is highly likely that a key reversal has taken hold.
Second is the sudden increase in "volatility". Normally, a healthy and rising market, NOT in a mania, will be characterized by low volatility or a small amount of either day-to-day fluctuation or intra-day fluctuation. A falling market will typically experience rising volatility as investor panic sets in. In the last two weeks the market has broken a year long trend of falling volatility. It has suddenly spiked higher.
Low volatility is the result of good liquidity. In other words, as there is a better balance between buyers and sellers, market movements are dampened. When liquidity is low, volatility rises as sellers swamp buyers and larger movements are required to entice buyers to step in.
Finally, this breakdown in stocks would be consistent with the oncoming double dip of this DEPRESSION.
So, how can you benefit?
There are many interesting alternatives - especially "inverse" Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs).
So, it depends on how aggressive you want to be. Inverse ETFs and ETNs come in a variety of flavors. ETFs often act as inverses by a factor of 1 - meaning that if an index drops by 1% in a day the ETF will rise by 1%. ETFs or ETNs, on the other hand, can also use leverage and MAGNIFY the effect. For example, ETFs and ETNs exist with both double and triple leverage. A triple inverse ETF or ETN will rise 3% for every 1% drop in the market on a daily basis.
Some ETFs that can be employed to create a short position can be found here (http://tradermike.net/2007/03/list_of_inverse_short_bear_etfs), as can an excellent selection of double inverse vehicles.
For some of the more aggressive ones they can be found here (http://www.stockrake.com/3x-triple-leveraged-etfs~2008~11.html).
Naturally, I cannot recommend anything but merely provide you with the information. I am no longer a Registered Investment Adviser (RIA) and need to make this disclosure. Each of these vehicles carry tax consequences and you should consult with a real RIA, as opposed to taking my word for it.
It's a crying shame that the country is on the cusp of entering perhaps its darkest period. But that doesn't mean that you need to go down the tubes with it.
On Monday, we'll cover the new employment data released last Friday and its implications for the economy.
Marko's Take
I wish you would teach me everything you know. Or at least try.
ReplyDeleteI always worry when more than a few folks say things like: "recently broke a very reliable chart pattern known as a "rising wedge" or "bearish wedge" ". Its as if all are following the same advise, which in itself is group think. One gets to thinking, and over thinking all this stuff, and its meaningless at some point. Hard to say when to follow the herd, and when not to .... ugggg .... Keep up the good work, enjoy your work. One thing for sure, the insiders control it all.
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