In the last “Thoughts,” I pretty much painted a scenario of the 60/40 portfolio’s demise and talked about moving to other markets that might “have the wind at their back.” today rally looks great, but my hedge indicators still show a DOWN TREND with HEDGES ON. Well, if this down move continues for some time and magnitude, what would some of those markets be?
A classic diversification might be gold futures. (No I’m not a Gold Bug!) The micro contracts in gold are affordable ($1600 margin) and you can easily go long or short, so I don’t care which way it goes. You just want it to move in one direction for a period of time, so that you can extract a profit. Below is an image of micro gold futures.
Keep in mind you might also be able to find some etfs that would tag along with these types of moves if you are limited to simply securities. The XME SPYDR could be a possibility here, but typically you would be long only. It might be harder to short at some brokerage houses.
The next thought might be to turn the negative risk of the stock market into a positive. There are now numerous etfs that are fully invested and sometimes leveraged as well in the down direction of stocks. A list I just screened in the Schwab etf screening platform is shown below. They all trade more than 10M shares per day on average. I’m not recommending any specific fund. I am trying to get you to think outside your normal boundaries. You would buy these etfs long to achieve a position aligned with a bear market. That’s why they called them “inverse.”
There are also futures contracts that you can easily short that would exploit negative periods for stocks and bonds. The last “Thoughts” included an image of the S&P500 futures that you could easily short and capitalize on a bear market in stocks, just like I do with my hedging strategy.
Over in the potentially negative bond arena, you might look into a futures contract that will benefit from rising interest rates. The new micro futures contracts on Treasury Yields gives you multiple ways to profit from rising rates. At this time my broker is calling for a little less than $800 for a micro futures contract on 30-year Treasury yields (Ticker 30Y on my platform). If interest rates do trend higher, you could use these vehicles to exploit the rising yields. I included a chart image of this below.
Finally, we see energy in the news everywhere you look. The micro Crude Oil futures contract with a margin less than $3,000 currently or many of the energy focused etfs like the XLE SPYDR would allow you to trade the upside in energy prices that are creating massive inflationary pressures to our economy and scaring the stock and bond markets.
I could go on with lots of other markets, but I like to keep these “Thoughts” short. I’m supposed to be retired, right? I now have good sized profits in coffee, Swiss francs, Japanese Yen, wheat, corn, soybean oil and platinum. All have had nice moves while stocks and bonds have had rough sledding recently.
Don’t limit the possibilities in your trading. There’s a lot of markets out there and not all of them are moving at the same time. Find your own special diversification, set yourself up to be able to trade it and enjoy the ride!