Tyler Bolhorn: 3 Ways to Short a Declining Stock Market

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Posted by Tyler Bollhorn - StockScores

on Wednesday, 04 April 2018 07:16

Tyler has chosen 3 instruments that go up when the market goes down. In case the long term trend line is broken these vehicles would be very profitable when we see another wave of strong selling pressure. Bottom line, you can make a lot of money in a brief period of time on declining prices by using these instruments - R. Zurrer for Money Talks

For many, this sounds like a bad thing but traders can embrace market weakness for a couple of reasons. First, there are numerous ETFs and ETNs that go up when the market goes down. Second, the market tends to take the stairs up and the elevator down. That means the profits come quickly if you are well positioned early in a correction.

Here are three vehicles to consider, and what to watch for, should the market break its long term upward trend line of support.

- Robert Zurrer for Money Talks



In this week's Market Minutes video https://youtu.be/KuVEfHab92E, I discuss how the market is threatening to break the long term upward trend line. While we don't have that break down yet, it could happen soon and if it does, we could see another wave of strong selling pressure.

For many, this sounds like a bad thing but traders can embrace market weakness for a couple of reasons. First, there are numerous ETFs and ETNs that go up when the market goes down. Second, the market tends to take the stairs up and the elevator down. That means the profits come quickly if you are well positioned early in a correction.

Here are three vehicles to consider, and what to watch for, should the market break its long term upward trend line of support.


1. T.HXD
T.HXD is a leveraged and inverse fund to the TSX 60 index. If the Canadian market falls, this will go up. Since it is leveraged, it is a short term vehicle that suffers from value decay over time as it has to be rebalanced each day. A good way to take advantage of a quick correction but should not be held long if the trade is not working. Watch for it to break out through $6.60 with higher than normal volume.


2. VXX
The VXX's value is based on the implied volatility of the S&P500 short term futures contracts. When markets correct, there is typically a sharp increase in volatility and that makes the VXX go up. The VXX is already elevated because volatility rose starting in February. If the long term upward trend line on the SPY is broken, volatility should go up some more. Watch the 3 year chart of the SPY for that break down.


3. SDS
SDS is an inverse and leveraged ETF for the S&P 500. If this benchmark index goes down 1%, the SDS should go up about 2%. Watch the SPY chart for a break of the trend line which should bring a breakout on the SDS through $43.50.


....also Tyler's Market Newsletter:

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perspectives commentary

In this week's issue: 


  • Stockscores’ Market Minutes Video – Watch the Market Index
  • Stockscores Trader Training – Be the Fussy Trader


Stockscores Market Minutes – Watch the Market Index

The trend of the market and whether it is oversold or overbought has an important effect on the movement of individual stocks. This week, I discuss how to assess the market factor, provide my weekly market analysis and look at the trade of the week on EEM.

Click here to watch on Youtube

To get instant updates when I upload a new video, subscribe to the Stockscores YouTube Channel

Trader Training – Be the Fussy Trader

Traders, particularly those who need to make money rather than those who would like to make money, tend to have a fear of missing out. They hear about a trading idea or find an opportunity with their own effort and make the trade with less thought than they might put into buying a microwave. They can invest thousands of dollars on an impulse, much like the drunken gambler who throws down $1000 on Five Red.

One reason for this sort of reckless approach to trading is the belief that trading ideas are like gifts. They only come along from time to time and you should feel grateful for the opportunity. If you spend 10 hours researching a company or receive the occasional bit of insight from someone who should know more than the rest of us, it's easy to understand why you wouldn't want to let a seemingly promising trade slip through your fingers. The problem is that this gratitude for trading ideas leads you to lower your standards and place trades that are not much more than a gamble.

Have you ever made a trade and then, just a few minutes or days later, asked yourself what the heck you were thinking? If you are normal, then it's likely that you have because it is easy to focus on the dream of making a profit. You should focus your attention on the trading situation as it has been presented to you by the market rather than the words of an expert. Some trading opportunities are so well marketed that it's hard to see the truth because you fixate on the profit potential that has been dangled before you as the prize.

It is critical to only take trades that meet the criteria of a strategy that you have found to have a positive expected value. Rather than look for a reason to take the trade, which is easy, look for a reason not to. Ask yourself, "If I buy this stock, who will be selling to me, and what does she know that I don't know?" Looking at the other side of the argument will often highlight considerations that you have missed.

Being fussy is a lot easier when you recognize that the market-even a slow market-will give you opportunities. The markets have been pretty quiet this year but there are still stocks outperforming the market every day.

And if you can't find a trade today, tomorrow or in the next week, eventually you will. There is always another bus coming down the road. If you miss one, just wait for the next.

I have found that you will actually make more money by trading less. If you maintain a very high standard for what trades you make, you will always pass on some trades that end up doing very well. By being selective, however, you will also avoid many marginal trades that would tie up your capital and then incur a loss. By being fussy and trading less, you end up taking only the very best trades and your results will be better overall.

It is easy to be fussy when the market is strong and there are lots of opportunities. It's like fishing when every time you cast your line you get a bite. With that kind of success, you will quickly throw back any fish that is too small because you know there's going to be something better coming along soon. You only take the best of the best.

When the fish stop biting and you spend hours with no bounty, you take the first fish that grabs your hook. It could be a tiny fish that you would never keep on even an average day, but with your desire to catch something, you keep it anyway. It would be better to have just not gone fishing at all.

You'll do the same thing when trading a slow market. Eager to make a profit, you will take trades that show some potential even if they don't meet all of your requirements. You will work hard to uncover a trade rather than wait for the obvious no-brainer trades that you take when the market is in a giving mood.

I like to say that in trading, when the going gets tough, the tough get lazy. You can't control the market, so if the market is not giving you opportunities, it's better to do nothing. Your hard work will not change what the market does.

This is hard for many people who have been programmed to relate hard work to success. If you try harder than the next person in a sport, you should get a better result. If you study harder for an exam, you should get a better mark. If you work longer hours at your job, you should make more money. In the stock market, if you work harder to find good trades, you will probably lose money.

The best trades are easy to find. Working hard to uncover something leads you to find questionable trades that you have to talk yourself into. It's better to walk away when you have doubts.

This is not to say that hard work is not rewarded in trading. Traders who work hard at practicing their analytical skills or developing new strategies will be rewarded. People who devote their time and effort to improving their emotional control will be better traders. These are things that you can control and affect with hard work, but hard work won't change what the stock market does.

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This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Foundation is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of this newsletter may have positions in the stocks discussed above and may trade in the stocks mentioned. Don't consider buying or selling any stock without conducting your own due diligence.


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