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Stock Ideas Investors Daily Edge Buying long-term puts ETFs like the Spyders, Diamonds, or QQQQ.
Stock Ideas Investors Daily Edge Buying long-term puts ETFs like the Spyders, Diamonds, or QQQQ. 
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Dear, Bad news for the country’s major financial institutions is pouring in so fast it’s hard to keep track of it all. Investors are growing more pessimistic as the nation’s biggest financial institutions including Merrill Lynch & Co., Citigroup Inc. and JP Morgan Chase & Co. continue to report dismal numbers from the sub prime fallout. |
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| Buying long-term puts ETFs like the Spyders, Diamonds, or QQQQ. |
| Monday, 30 June 2008 | ||||||||
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The pullback continues. Last week’s selling has caused a clear crossover of two moving averages that signals more downside is likely. The S&P 500 has dropped sharply throughout the month of June and this has resulted in the 10-month moving average crossing bearishly below the 20-month moving average. This type of crossover doesn’t happen all that often, as you can see in the chart below. The last time the bearish crossover happened was in March 2001. Sure, the S&P had already dropped 400 points from its high, but it dropped another 400 points over the following year and a half. So we could have a long way to go before we see an end to the bear market. I will caution that we are likely to see rallies like we saw in the spring of ‘01 and fall of ’01. In fact, I look for one in the near future, given the number of stocks that are oversold after the last two weeks of selling. In fact, I ran a scan of stocks in the Nasdaq 100 and S&P 500 to see how many of them were oversold based on a 14-unit slow stochastic below the 30 level. The results were astounding. In the NDX, 75 of the 100 met the criteria and in the S&P, 357 met this requirement. Just for kicks, I ran the opposite scan as well, stocks in the two indices that had slow stochastic readings above 70. There were a whopping total of four in the NDX and 26 in the SPX. These are incredibly one-sided ratios and suggest a bounce is due. But don’t get caught up in the bounce and think that the bear market is over. If you haven’t heeded the warning yet, you should take steps to preserve capital. If you use options, look at buying some long-term puts on ETFs like the Spyders, Diamonds, or QQQQ. If you are averse to using options, look at some of the double inverse ETFs that are out there. Here is a quick list:
 ProShares Ultrashort QQQQ-QID ProShares Ultrashort Dow 30- DXD ProShares Ultrashort S&P 500- SDS ProShares Ultrashort Russell 2000- TWM ProShares Ultrashort Semiconductors- SSG ProShares Ultrashort Financials- SKF ProShares Ultrashort Basic Materials- SMN ProShares Ultrashort Technology- REW These funds will rise in value as the associated ETF falls, and these ETFs are leveraged so the move is double the down move. In other words, if the QQQQ falls one percent, the QID will rise by two percent. Now is not the time to sit idly by, now is the time to protect your assets. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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