Top ETF To Buy In Market Sell Off

RoboStreeet – December 20, 2018

Profiting Big From the Stock Market Correction

The S&P 500 has extended Wednesday’s Fed-induced sell-off. Worries about a monetary policy mistake being made, in conjunction with ongoing concerns over trade, economic growth, possible and politics, have held back buying interest so far. Fear and volatility are rising fast with each and every day the market can’t find buying interest and sequentially lower levels.

In addition, investors continue to be put off by the market’s inability to wage a sustained rebound effort from what is widely regarded asa short-term oversold position. That inability to rally, and the continued weakness in cyclical sectors, has fostered concerns that there is more downside to come.

The Dow Jones Industrial Average is down 14.9% from its October high, the S&P 500 is off by 16.0%, the Nasdaq Composite is down 19.7%, and the Russell 2000 is down 23.8%. At this point, the Nasdaq and Russell have entered bear market territory with the Dow and S&P not far behind.

Other problematic headlines have included the Department of Justice indicatingtwo Chinese nationals over alleged intellectual property theft from U.S. technology companies and a government funding bill possibly running into some approval problems, which is risking a partial government shutdown after Dec. 21 if it is not passed.

These developments, along with falling oil trading down to $46.00 per barrel and copper prices now at $270/ton, have added to the heightened sense of uncertainty that has weighed heavily on investor sentiment, which has continued to manifest itself in falling equity prices.

Within the S&P 500, the consumer discretionary, information technology, energy, and communication services sectors lead the broader market lower. The utilities sector, on the other hand, has shown relative strength as the only group trading in positive territory. And at some point, the utility sector will come under pressure too if the market can’t find some support.

How low can the market go? Well, looking at the 5-year chart of the S&P 500, which is the stock market’s key benchmark, the next major level of technical support 2,350 or $235 for the S&P 500 SPDR (SPY) as per the chart below. This would represent another 5.2% downside in the current move which would take the S&P into a bear market territory or find an institutional bid for the market. We won’t know until we get there, and my most indicators, it looks like that level will be tested.

Assuming this scenario plays out there are two highly liquid instruments that stand to outperform. The iPath S&P 500 VIX Short-Term Futures ETN (VXX), which is an Exchange-Traded Note backed by Barclays Bank. Shares of VXX are designed to provide access to equity market volatility through CBOE Volatility Index (the “VIX Index”) futures. VXX offers exposure to a daily rolling long position in the first and second month, VIX futures contracts, and reflects market participants’ views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index.

The market cap of VXX is $747 billion with average trading volume greater than 50 million shares per day. Currently trading at $45, VXX shares can trade significantly higher as per the 2-year chart below depending on the scale of the current correction and the speed with which the market challenges its next support level. This is a very effective way for investors to not only bet on the further decline of the market but also provides a highly useful way to hedge stock portfolios that are long the market.

Looking at the future price probability for VXX, my Tradespoon Stock Forecast Toolbox has a potential six-month price target of $68.42 That would be a +53% gain from its current price of $44.60. Establishing an attractive cost basis is where I come in and lead our RoboInvestor subscribers to jump in. Getting the right-price right on the very short term takes more than just skill – it takes AI– both Tradespoon hallmarks.

I’ve been trading the VXX forRoboInvestorsubscribers for the past six months with great success and continue to believe this is one of the best trading and hedging vehicles to work within highly volatile markets.

The other instrument of choice to profit from in a market sell-off is iShares 20+ Year Treasury Bond ETF (TLT), which is a pure play on lower long-term Treasury yields as the flight to safety puts tremendous downside pressure on long-term interest rates. It should also be noted that longer-term bonds are more price sensitive to interest rate movements and guidance from the Fed.

Investment in TLT shares seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. The underlying index measures the performance of U.S. Treasury public obligations that have a remaining maturity greater than twenty years. The fund has an expense ratio of 0.15%.

This is the only ETF that offers exposure to longer-term Treasurybonds. In fact, out of all ETFs offering exposure to the Treasury market, TLT has the highest average trading volume of 9.06 million. This makes it easier to buy and sell shares in the ETF, thereby lowering the liquidity risk when investing in the fund.

My AI Seasonal Chart shows three of four forward time periods showing a higher probability of TLT shares appreciating over the next 50 days. This is a very strong read and catching the best short-term entry point is where my tools do their best work. This is a very bullish trade that has room to run, but volatility can make it difficult for making a timely purchase. Again, this is what we do at Tradespoon, identify when and what price to get in at as well as went to exit the position.

I believe current Fed policy will keep short-term treasury yields higherand increase market expectations of a potential recession in the future, which will cause longer-term yields to fall. In this case, this would support the inversely correlated long-term bond yields higher, and consequently allow the TLT ETF to rally higher. The Fed did not lower its projections as much as the markets expected. For instance, they stated they would lower their projections from three to two rate hikes for 2019, which upset markets that were trading on the notion of preparing for no rate hikes at all next year.

When long-term Treasury bond yields were at their lowest in mid-2016, shares of TLT traded as high as $144. Today, they trade at $121, or 19% higher. It’s my opinion that market sentiment toward long-term rates moving lower will continue to rise, and with it the price of TLT shares will appreciate as well. Slowing global growth, political instability, and fear of capital erosion have gripped the market. Getting long the VXX and TLT is one way to turn lemons into lemonade and putting a floor under further downside risk.

Take a positive year-end step forward and become a member of RoboInvestor. I put my own money to work in every stock or ETF I recommend. My AI platform has produced a long string of winning trades all year and will guide us out of existing positions at the optimal time so we can still book gains. Now is when having a scientifically proven system go to work for your portfolio and not just manage the damage done in the market recently is most crucial and can lead the way toward a successful 2019.