Face Facts: We’re in a Bear Market
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Good morning folks, and welcome to the Rude Awakening!
No surprise, today’s looking like another down day in the market…
Let’s find out what that means for us traders.
What Does a Bear Market Mean for Traders?
S&P Futures are down by 24 points. If you don’t know, as Investopedia describes:
S&P 500 Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index.
So, falling futures indicates negative activity for the market.
The NASDAQ is even lower, down about 129 points in today’s premarket.
All indices are well below their 50day MA.
If we look at the SPY (showcasing the S&P 500), we can try to determine the next area of support. In other words, we can try to pinpoint the range where we can expect the S&P to consolidate.
We are currently sitting right at the previous support level, from the end of July, similar to previous support levels from much earlier this year in January.
This was around the $320 level.
Now we have to see if we can hold that level or not.
If we can’t, the next level would be around $312. This would be a massive move, another 3-4% below the support level we’re expecting to hold.
The question is no longer “Are we in a bear market?” (We are definitely in a bear market.)
The question now is, how low will it go?
So, while regular investors are petrified of a bear market, traders can profit from any market.
It just means we have to figure out the best, safest way to profit from this bearish trend.
Buying & Shorting
You know about buying stock.
But you might not be well-versed on the idea of shorting stock.
There are two activities in the stock market you can engage in.
Buying stock is also known as “going long.” This is owning shares of stock.
You buy at a certain price, hoping the price will go up. If the price does increase and you sell it, you keep the difference.
ie. Buy $10 stock, stock increases to $15. You sell, and collect a $5 capital return.
The other way you can engage is “going short” or “shorting” stock. This is selling borrowed stock.
A broker in this case would lend you shares of stock at its current price, and you hope that the price drops. Then, if it does, you sell the stock back at the increased price value.
ie. Borrow $15 stock, stock drops to $10. You sell the shares back, and collect a $5 capital return.
On a very basic level, this is the strategy making money in today’s market.
However, people are scared of shorting… In part, because it’s more complicated than buying. What’s more, this method of trading has limited upside and unlimited downside.
But, there is another way to collect from a “short” position in the market, without shorting stock…
“Shorting” Through Buying?
To find out about today’s play, a position that will allow us to profit on the bearish trend we’re facing through an ownership position (rather than a short position), click here to sign up for the free beta test of the Rude Awakening Pro.
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That’s it for today.
We’ll talk again tomorrow…
Editor, Rude Awakening