I see too much risk and not enough gain in various bearish trades I've been looking at. Sure, I look at many charts and see textbook bearish setups. So this environment must be ripe for bear put spreads, long puts, and short stock trades, right? But with the money that keeps coming back into this market, these are not high probability trades right now.
The only bearish trades I am considering are SMALL (did I emphasize SMALL enough?) trades in inverse ETFs. Protect existing bullish trades with trailing stops and stop-losses. But for a little action on the downside, I am looking at my three favorite inverse ETFs. The reason I say SMALL trades is inverse ETFs are usually based on futures contracts (be sure to investigate the tax consequences) and can have significantly volatility.
SDS, the ProShares UltraShort S&P 500 fund, is a leveraged (2x) inverse ETF. It has been trading within a tight range between 28 and 29. The rising Stochastics indicator says the closing price is working its way up the recent range.
A breakout above this range would offer a decent probability trade, if a tight stop-loss was used (I would use 8%), AND a profit target in the area of 30 to 31 was used. If you get into an inverse ETF, place on getting out as soon as possible. Inverse ETFs, especially leveraged ones, are good for trades lasting a few hours to a few days. Any period longer than that and you are living on borrowed time.
The other two inverse ETFs I occasionally trade are SKF and FAZ. Both of them are leveraged inverse ETFs on the financial sector.
I actually expect a short-term low to be set in the market within the next several days. But for anyone who wants some downside protection, or a way to execute a trade to possibly land a several percent gain during what should be a brief market pullback, then an actively-traded inverse ETF may work for you.
High probability setups on stocks with strong seasonal track records, and the best ways to trade them, are covered in every issue of Seasonal Forecaster.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal
Copyright (C) 2014 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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