A great way to do so is through buying the inversely
correlated UltraShort Basic Materials ProShares (SMN), which moves in the
opposite direction of the underlying sector. On the daily chart below, notice
how SMN was trading in a sideways range after breaking out above its downtrend
and moving back above its 50-day MA. Then, it broke out above its recent range
yesterday:
Since SNM has broken out, any pullback to the pivot (the breakout level shown
above, around $35.50) presents an ideal buy point. Traders do need to be aware
of the 200-day moving average, 2.5 points above the breakout level, but momentum
from the four-week base of consolidation could easily push SNM through that
resistance level. If not, SNM can still be sold into strength of that move for a
quick gain of 2 points or so. As with the entire UltraShort family of ETFs, the
best thing about SNM is that you can easily take a bearish position in a
non-marginable, cash account such as an IRA because you are buying, not selling
short.
If you, like ourselves, are having a difficult time finding trade setups with
a good reward/risk ratio and high probability of success right now, that's the
stock market trying to tell you something! Are you listening? Right now, the
lack of quality setups tells us that many stocks and ETFs are in "no man's
land," stuck between key support and resistance levels. They have about equal
odds of moving in either direction in the short-term. When faced with such an
environment, it's extremely important to avoid overtrading. If you don't ease up
on both the quantity and share size of your trades, you'll likely "churn" your
trading account, steadily bleeding capital out of it ("nickel and diming
yourself to death," as my grandmother used to say). Don't forget that cash is a
perfectly legitimate position! Now is a great time to be sitting in it, waiting
for the market to show its hand for the intermediate-term direction.
Open ETF positions: Long - EWH
Short - (none)
