This week looks to be very exciting. Friday ended with optimism that we might see the gridlock in DC loosen up but in the end they just kicked the can down the road. Meanwhile, we are watching oil climb, jobless claims rise, and some clear signs we are looking at a reversal.
A classic confirmation of a reversal is lower lows. It sounds oversimplified but it is very straightforward and easy to see. We saw lower lows last week as the SPY (the ETF that tracks the S&P) gave up on getting back above its 50 or 10 day moving average and just held on to the 100 day for dear life.
We have to go all the way back to February and March to see anything even close to this kind of move down and even then it didn’t hit the 100 day.
It used to be that shorting stocks would be the way to play a downturn, but fortunately it has become much easy to shift your trading to exploit this type of move. Inverted ETFs like SDOW or SPXU follow the indexes but go up when the underlying asset goes down. Also, they have decent volume and you can consider taking call options on these ETFs as a way to be positioned for a big win if the market plummets but also keep your risk fixed to an amount you are comfortable with.
Lee Gettess has some great strategies for recognizing and also taking advantage of exhausted markets. Be sure to check out his momentum trading approach here.
Keep learning and trade wisely,
Market Wealth Daily
PS-It should go without saying that markets always have an element of uncertainty. Especially when looking at this type of climate make sure you are using smart protection strategies to make sure you don’t get wiped out. A couple weeks ago we talked about position sizing which is an absolutely critical element of risk management. Check out the article here.