How to Survive and Profit in these Current Market Conditions
Monday's is when I talk about buying selling or holding positions. Maybe now its more appropriate to buy sell or panic. First I would suggest not to panic, and if you are, your portfolio most likely needs some attention and adjustments.
Do you want to buy long or put more short sells on right now? I would suggest that near-term the downside looks to show more reward than the upside. That’s not to say there’s no money to be made on an oversold bounce here right now, but more caution is advised right now on the long side. See more information below on how to survive and profit in the current market conditions.
Long-term I’m leaning to the short side, but I will wait for some near-term retracement of the last bloody downside 30 days of May or simply have to sell-stop into continued downside.
Long Picks for this Week
For those that want to buy long, here’s a list of stocks that could see some near-term upside. Using stop-loss has never been so important in a volatile market like now. APOL, PDA, PETS, EME, EPL, FDP, HTLD, NTGR, OIS, QSII SLH, AND WBSN.
Astrazeneca AZN looks like an interesting buy right now. Could be a good long-term hold for awhile maybe.
Short Picks for this Week
For those that want to initiate new short sells immediately this week, the following list looks to possibly provide the best low-risk high-reward short sells right now. AET, AMR, BMA, CAL, MANT, TOO, and VR. The best short sell of this list is AMR or American Airlines I believe.
First American Airlines fundamentals are not the best in the industry. Fundamentally moving forward, continued high un-employment and lower gross domestic product lends itself to less airline flying and potentially lower stock price. I do see lower oil and jet fuel prices going forward near-term, but I don’t think they will have the affect yet to bring more flyers back to the airlines to increase their earnings per share and stock price near-term. Normally summer would be a busy vacation traveling season, but with the stock market declining as it has this May, also traveling the friendly skies looks to be less also for now.
Technically, I see current AMR near-term major resistance at 8.68 and major support at 5.95 with AMR’s current price June 04 closing price at 7.71 making for a liquid low-risk high-reward short sell. Starting December 01, 2009 a head and shoulder top looks to be forming with the right shoulder forming now. If you didn’t know already, head and shoulder tops and bottoms have historically been low-risk high-reward buying selling trend reversal opportunities.
Sell Short American Airlines – Ticker AMR
Sell Entry: 8.14 to 7.58
Take Profit Areas: 5.95 to 5.62, 5.27 to 4.97,
How to Profit in Declining Markets
How has the market been for you in the last 30 days? If you were long equities, I hope you survived. Never in a long time has the cliché “sell in May and go away” been so significant. How can you survive and better yet make money in the current market environment? Below I’ve listed a number of ways.
Dead Cat Bounce Due?
First, the global markets have been sold off so big in the last month that could possibly see an upside bounce for a variety of factors. Short covering, investors coming in to buy and hold at relative deep discounts, speculators looking for a counter trend move to the primary trend, which the primary trend looks to me as down now, and traders trading the dead cat bounce and the volatility moves.
Then again, the fear could accelerate as armchair investors traders review their portfolios over the weekend and the last month, and then decide that they can’t handle more pain and suffering from their long position with more selling pressure. Mutual fund managers seem to be trying to keep their jobs by talking up the market to get some inflows into their funds as current inflows have been declining. I suggest getting involved with the short mutual funds long term if you don’t want to trade and managed your own short-sells, and or trade futures or have a managed futures account to participate in food commodities as everyone has to eat.
The euro has now broken the 1.20 psychology price handle to the downside, and could possibly find some near term support at 1.1931 for a tradable upside move. If things don’t get better in Europe, intermediate term, the euro could start hitting 1.18 to 1.16 areas with 1.20 as new major resistance. A little further out, if things stay bad longer term or get worse in Europe, 1.12 to 1.10 areas is possible. I remember when the EURUSD went below 1.20 in November of 2005. On the rebound from the mid 1.16 rumor had it that the Saudi’s where heavy buyers of the euro in the 1.20 to 1.25 area, and then its subsequent move up topping out at 1.6038 in July 2008. Maybe they’re rethinking their Euro positions now as everyone is. Very long term, 10 to 20 years from now, the Euro could be possibly no longer as many of the great analysts are saying. Take note that the Gulf Arab countries just removed for now the idea of one regional GCC currency, possibly heeding what is going on in Europe now and what will happen going forward.
What Should You Do Now?
The global stock markets currently look to be pricing in a double dip, recession and or a depression whatever you want to call a bear market. Long term I do see the markets going to new lows taking out the lows of March 2009. Based on long term cycle forecasts, I see a bear market bottom in June of 2016. Right now the markets look real bad right now if you’re long. For the nimble investor, meaning you’re more active in the markets like a speculator and or trader, there are ways to profit from volatile and declining markets. As the markets move, so do you with them buy or sell, win or lose. Never hold a losing position in a strong up or down trending market is my best suggestion no matter how much money you have. It’s psychological and financial suicide in the long term. As Nouriel Roubini says, “maybe too big to fail means, some companies are simply too big, and need to fail, be downsized or restructured.”
Cash is the Ultimate King of Kings Right Now
Go to and or stay in cash. Cash is a good trade and investment in markets like this. During hard times in the markets, the best course of action is simply be defensive by staying on the sidelines and being liquid with cash waiting for low-risk high-reward trades and investments.
Trade the Cash Market
Trade the forex market. With $3 trillion in daily volume, liquidity is the best you can find in the financial universe, you can take buy long and sell short positions with few restrictions and you can leverage up or down if you want. In a current world of de-leveraging by the big players around the world, I would suggest to the small players that possibly increased leverage could be of benefit at times but it has to be managed and adjusted constantly to keep you out of trouble long term. This is one major reason why the global economics are where they are right now. Exponential leverage was applied for far too long, creating a major bubble. Normal leverage in the forex market would be 1:100 or less. Extreme leverage is 1:500. Pick your risk appetite point depending upon how much cash and cashflow you have. Good currencies to buy long right now I would suggest are the US Dollar, Swiss Franc, New Zealand Dollar, and the Singapore Dollar. A balance of these has the ability to keep currency risk to a minimum.
Gold Silver Linings?
Buy a little gold on a regular basis but don’t overload your portfolio with it at these current prices. 5% to 10% of your total portfolio is quite adequate. Consider small amounts of gold purchases every month or quarter to average in, in case the price is declining. Near term silver looks down some. Near term gold looks to be down too, but long term gold looks like it can possibly move up to new highs. If deflation continues with lower assets across the board, gold and silver could follow them too. The best times for buying gold are during early inflation economic expansions which have not happened yet. Deflation is the actual reality right now. Gold has lost its momentum since its 2006 peak. And with late night television shows and other media pitching to buy gold, makes me suspect to a low-risk high-reward buy on gold right now.
Safety in Defensive Non-Cyclical Stocks?
Possibly buy defensive and non-cyclical stocks, but be very careful here too. Approximately three out of four stocks go down in a bear market. This ratio doesn't just apply to high beta names historically. 75 percent of all stocks go down when the general market falls. Potentially past good safe haven stocks are non-cyclical, soft consumer goods, pharmaceutical, and healthcare companies. Most of the time, these companies make money during good and bad times. Go for those stocks that pay a good dividend rate. So you’re getting paid while waiting for the economic recovery. Again be careful with this idea of investing long-term. Back during the 1973 – 1974 bear market, some US blue chip companies went down 80% to 90% and or went bankrupt.
Long Term Investing Now?
If you’re buying for minimum of five years or longer I would say maybe you’ll be okay and I’ll emphases maybe. I would suggest that if you buy now, you might breakeven in five years from now and start to show a better than average profit after that, so with dividend stocks you could possibly outperform the market averages. If you bought the market in 2000 and held until now, you would still be at a loss so long-term investing is not guarantee of profiting for now at least. If you do invest long term, look for the best managed companies paying a dividend with 50% or less debt to equity. Actually these days of financial crisis, 25% or less debt to equity would be better long-term. To survive a long-term bear market requires a war chest of cash to survive and rule later.
Short sell the market and stocks if you’re able to. Some markets don’t allow it though. Being an active short-seller can be very profitable, but close management is required. Or buy into a short ETF or Mutual Fund and leave the management to professionals. Short selling is just like buying stock long during an uptrend market, except your doing it in a declining market. Look for major resistance price points, market upticks, and Fibonacci retracements to initiate new short sells to attempt to get the best selling price, always use stop-loss, watch your leverage if using, and watch for the short covering rebound to lock in profits by using a trailing stop-loss.
For those interested in getting aggressive to the short side, sell out of the money put options on the stocks you want to purchase. If you’re a value bargain hunter, you can sell the puts and earn a premium. If the option gets exercised, you now own the stock at a lower price less the premium you earned.
Go To Work In a Job and or Create and Build A Business
Lastly and I would suggest the most important right now. Go to work in a job, and better yet, create your own job buy building a business from any size, and be a part of creating gross domestic product for the country you live in and the world as a whole. If you don't have a job, create your own, but try to do something that contributes and benefits the area of where you live.
Price bubbles infancy starts with the optimism of a growing economy, the companies involved in that growth, and excess cash from individual to institutions buying into that growth. Real economic growth is from the people working hard to building business, and those investing into it after, that elevates investment instrument prices over time. When price bubbles pop, the best thing for anyone to do is go back to work at least until the economy and investments start growing again, then step back into the markets with your risk money to make a bet on a better future.
I do believe good prevails in the end. It has so far, and if the world ends tomorrow, you’re not going to take with you into the afterlife anyway.
Disclosure: Going Short On AMR Per Trade Plan Above. No Positions on the Other Tickers Mentioned