Let's face it, the market has just come out of a week of trading that has never been seen before in the history of the New York Stock Exchange. Those investors that have stayed in have taken hits to their portfolio that are now causing them to find cash to buy puts for protection even if the market turns to the upside. Those that want to retire are facing the same dilemma that took place less than five years ago, ever prolonging their goal of finally ending their careers. Hearing these things sounds like doomsday scenarios again, but I believe that investors can alter their strategy to become more protective with there securities through some options play or even try and play the bearish trend with bear ETFs. Beyond this I think there is even another way investors can invest now in order to capitalize on some discounted companies that are sure to gain during the back to school season.
Increasing positions of gold has been one of the most popular defensive plays in today's market, if not the most popular. The best way to play gold right now is not through gold mining companies but through investing in derivatives such as Spider Gold Shares (GLD) and iShares Gold Trust ETF (IAU), both funds with the main strategy to replicate the performance of Gold which is currently at $1,889.50 per Troy Ounce and as the markets uncertainty continues both gold and replicating funds will continue to be a safe haven and a profitable position to add to any portfolio both now and in the future for diversification.
The rule of the market is that it seems to take so much time for the market to go up but for the market to crash, it can happen in a blink of the eye. Like the rally from the lows in March 2009 with the DOW posting 6,570 for a bull market taking us to pre-recession levels on July 22, 2011, almost a 100% return on equity, of the DOW at 12,571. But as this took over two years, the recent downturn pulling the DOW back down 2000 points in less than two weeks is the scariest part of the market and is evidence of the rule discussed earlier.
Here is a concrete list of some issues that we, as investors, should be concerned with as these are the indicators that are showing signs of the weakening economy, which many expect is not close to a bottom yet and when the next batch of figures for each issue will report next. These issues are limited to domestic U.S. Indicators, even though the thought of a eurozone collapse would dwarf the subjects and issues discussed. Next I pick some ways investors can play upcoming seasons, like back to school shopping, that will force changes in demand and investors can capitalize on current discounted stocks and other products like ETF's.
1) Consumer sentiment is down as Thomas Reuters University of Michigan's August estimates will show that U.S. Consumer sentiment is at its lowest point, a score of 45.4, since May of 1980. Furthermore, the poor sentiment is seen for all subsets; low, medium, and high income levels.
I still feel confident that some companies can provide shareholders with good earnings over the next few months. Though consumer sentiment is down I believe that companies like Apple (AAPL) will perform well as numbers coming out from third party analyst companies have proven that Apple is increasing its market share with its iPhone, both in units shipped were they have become the leader in smart phones and in actual sales in which Apple has grown it's market share over 5%. Many students have been waiting for Apple's back to school deal ,usually involving free iPods and printers, that will help increase Mac and Macbook sales that have been retreating in recent quarters. This will also be the first time Apple will not have the type of supply issues it's had for the iPad and many schools are integrating the use of iPads into courses. One Seeking Alpha member discussed how her son, a middle school student, is now using iPads in school. Furthermore, it was announced that Apple's iOS platform accounted for 29% of units sold, an increase from the first quarter of the year. Google's (GOOG) mobile operating system Android platform increased its smart phone units sold during the quarter to a 52% market share.
Another market for back to school is college students. Regardless of the market conditions those who are going back for the fall semester will be stocking up on food, clothes, textbooks, school supplies, and as discussed earlier computers.
Big box retailers like Costco (COST) and Wal-Mart (WMT) have been packed for those who are stocking up on everything from wholesale prices on food, furniture, electronics, and school supplies that all freshman need and both students further along and graduate students will be upgrading.
2) A correlation to poor consumer sentiment is the biggest laggards in the economy, the Real Estate market. Those looking to buy homes have now put the trigger on hold as the stock market has decreased the wealth of millions. One home buyer in California was getting ready to buy a home but with these past two weeks has changed her mind:
“Seeing what’s happening on the stock market made me think that it’s not a good time to be buying a home,” Jain said. “I’m going to wait and see.”
Even worse the mortgage issues are back to the worse levels after several quarters of improvements. MBA's Mortgage Delinquency Survey reported that the number of Delinquent Mortgages in the second quarter rose a whopping 8.44 percent of all mortgage loans outstanding. Numbers will be released on August 23rd at 10:00 AM indicating new home sales for the month of July, which should show improvements as housing starts fell for two consecutive months, declining from 315,00 in May to 312,000 in June.
Ways to play the real estate market can be found through certain ETF's here are a few; Vanguard REIT (VNQ), Direxion Real Estate Bull (DRN), KBW Premium Yield Equity (KBWY), Direxion Real Estate Bear 3X (DRV).
3) The eurozone crisis is causing stress on U.S. Banks as we have seen companies like Bank of America (BAC) hit price levels that few would have predicted this many years after the recession. But also mortgage issues have come up again to put stress on the lenders. Right now BofA, and other financial institutes need to get on solid footing as new regulations from the Frank-Dodd bill, limiting overdraft fees and regulating other revenue sources for banks are going to cause a spiraling effect. To make up for lost revenue, banks will start increasing maintenance costs for checking accounts which in turn will drive consumers away to substitutes like prepaid debit cards . Increased risks and regulations make me bearish on banks.
Besides shorting some bank stocks themselves I have had success with certain financial ETF's. Here are just a few that have been both profitable for me and I have had little problems trading; Direxion Daily Financial Bear 3X Shares (FAZ), ProShares UltraShort 2X Financials (SKF), and the Short Russell 2000 (RWM).