The bulls are back and your portfolio reflects the upward move. Time to take profits and set up for a potential, short term pull back.
The strategy does not involve shorting stock. You don't want to be caught short amongst the bulls. You just want to be the smart guy collecting a little profit to buy back the winners at lower prices. This strategy involves selling and locking in 50% of you profits. If there are stocks that have had a good run, sell more than half the position or close it out completely. You can always buy into the stock at any time.
Now you have available buying power and you feel better as your positions rolls into negative territory. With the available cash, buy these 5 short term ETF's. Only use 50% of the available cash. The other 50% of your available cash is reserved is to buy back the shares. Let a day or two go by before adding to the positions.
The ETFs to buy with 50% of the available cash are:
1. ProShares UltraPro Short Dow30 (NYSEARCA:SDOW)
2. Proshares UltraPro Short QQQ (NASDAQ:SQQQ)
3. Direxion Daily Emrg Mkts 3X Bear (NYSEARCA:EDZ)
4. Velocity Shares 3x Long Gold ETN (NASDAQ:UGLD)
5. iPath S&P VIX ST Futures ETN (BATS:VXX)
*Note: These are high volatility stocks with risk involved. Not suited for long holds.
These are our go-to products for short term down trends. Yes, this is the strategy we put on for Tuesday, 3/22/2016.
Limit sell orders are placed between 6%-10% profit. If they have more potential of moving up, I place only 50% of the position at the limit sell price.
Meanwhile, buy up your favorite stocks with the other 50% of cash available. When the ETFs start selling, immediately invest it back into the positive direction.
This strategy typically runs for a couple of days or weeks. Profit resulting from the ETFs are used to increase winning positions.
After the market starts recovering, you are out of the ETF positions and have picked up stocks at a lower price.
Disclosure: I am/we are long UGLD, VXX, EDZ, SDOW, SQQQ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.