Published: November 6, 2009
After watching the stock market skyrocket
more than +60% off its March 2009 lows, investors are getting
anxious about a possible pullback . . . and for good reason.
When the stock market gets ahead of itself, just like it did in
the late 1990s and in late 2007, the resulting pullback can be
swift, severe, and downright painful for investors.
It should come as no surprise then that anxiety about a
potential market pullback has reached an almost frenzied pitch
in recent weeks, especially in light of last year's devastating
declines. And investors have every reason to be anxious right
now, as a long-overdue market pullback finally appears to have
started with a sharp drop of more than -4.0% by the S&P 500 last
My Cycle Forecast Model of the S&P 500, which is available
exclusively to subscribers of my premium service, Mastering the
Markets, has been forecasting a roll-over in the market for
several weeks. I trust this model, as well as my Turner
CrossOver Oscillator and a number of other sophisticated tools I
have at my disposal. And right now all of them are telling me
the market is headed lower -- perhaps a lot lower.
As a result, this week I'm recommending a special kind of
security that could help you profit from a declining market.
These securities are called inverse ETFs (exchange-traded
funds), and they're designed to increase in value when the stock
market heads lower.
I've reserved my top-ranked inverse ETF for my premium service,
Mastering the Markets. However, if the overall market plummets,
then the following inverse fund could also deliver substantial
gains in the coming weeks...
The ProShares Short Dow 30 ETF (NYSE: DOG) is designed
to deliver the exact opposite performance relative to the Dow
Jones Industrial Average. So if the Dow declines -15.0%, then
this fund should jump +15.0%. As you may know, the Dow Jones
consists of 30 of the largest bellwether stocks in the nation.
These stocks are likely to nosedive in the face of any sort of
overall market correction. And if they do, then shares of DOG
could rise sharply.
Below are my Technical reasons for selecting DOG for this week's
Bottom line: Buying DOG could prove to be a very good strategy
in a down-trending market.
- I divide each security's trading range over the last three
years into four Zones. (If you look closely, you can see each of
these Zones labeled in gray text in the center of the chart
above.) Each Zone represents 25% of the stock's three-year total
range. If an equity is in Zone 1, it is in the lowest 25% of its
three-year price range. Meanwhile, Zone 4 represents the top
25%. If I can find a stock that is in Zone 1 and has the
fundamentals and/or technicals to support a climb back up into
Zone 4, then it becomes a candidate for consideration. In this
case, DOG is trading in Zone 1 and appears poised to move
sharply higher off its recent lows.
- DOG's share price has moved from the top of Zone 4 (near $90)
last March to a recent low in the mid-$50's. Although DOG is
technically still in a short condition (note red color of the
price line in the chart above), it has begun to bottom. All of
my data tools are telling me DOG is likely to head back into the
mid-$60's, which would represent a jump of about +15.0% (or
more) from today's levels.
- The fund's average daily trading volume has been steadily
growing over the past few weeks, and it spiked sharply higher
last Friday. This is a strong sign that significant momentum is
building up in shares of DOG as investors look to get in.
Action to Take: Based on the analysis above, here's how I plan
to trade DOG:
Potential Profit =
- Buy DOG with a limit order at $56.50 (Good for the Week)
- Set an initial stop loss at $50.57
- Target price = $67.00
-- Mike Turner
Mastering the Markets,
Trade of the Week