There’s no doubt 2015 was one of the most volatile years in recent history.
But here’s the thing… I believe 2016 could be even rougher.
We haven’t even seen the sell-off I’m predicting yet; it’s likely to make the plunge we saw on Aug. 24, 2015, look like a kiddie ride.
Just as there’s nothing solid or healthy underpinning the stock market gains we’re seeing now, there will be nothing to catch investors who aren’t prepared to trade this volatility – just a long, deep drop.
There’s no bottom in sight, but the good news is there’s one easy way to trade just about everything the market is likely to throw at you this year.
Here’s what we should do…
Make Serious Money When Stocks Go Down
When I’m bearish and want to bet stocks are headed lower, I generally like buying inverse exchange-traded funds (ETFs) based on the major market indexes.
ProShares Short Dow 30 (NYSE Arca: DOG) for the Dow Jones Industrial Average, ProShares Short S&P 500 (NYSE Arca: SH) to short the S&P 500, and ProShares Short QQQ (NYSE Arca: PSQ) to bet the Nasdaq (QQQ) is headed lower.
If I’m extremely bearish, and I believe stocks are going to fall hard today or tomorrow, I’ll sometimes buy a leveraged short inverse ETF like the ProShares UltraPro Short S&P 500 (NYSE Arca: SPXU). The UltraPro Short S&P fund is a “3x leveraged” inverse ETF. That means if the S&P 500 (SPY) goes down 1% today, SPXU would go up 3% today.
But this is important: Leveraged ETFs are only meant as short-term trading vehicles. That’s why I said “if I believe stocks are going to fall hard today or tomorrow.” Because of the way leveraged ETFs are priced, they’re “re-set” every day – they’re not good long-term holds.
In a perfect world, if your conviction is right and you buy a leveraged inverse ETF and stocks go down right away, and they keep going down for multiple days in succession, you’ll be a very happy camper.
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