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Have We Seen the Top of the Stock Market? Probably

by Fred Fuld III

A week ago, on Monday, May 10, 2021, the SPY was trading at the 422 level. Also on the same day, the Dow Jones Industrial Average 35,091.56. Since then, we haven’t traded even close to those levels.

The SPY has dropped about 2.7% since that time and may have further to go.

The Dow has dropped about 2.9% since then and it looks like we could see lower levels.

There are all kinds of fundamental and technical reasons why the stock market may continue to drop, and we may never see the highs of las Monday for a long, long time. However, in this case, this is only a hunch, not a recommendation to sell or short (or even buy). It is just my opinion that we are headed into a bear market.

No recommendations are expressed or implied.

Worried About a Stock Market Crash? 7 Things You Can Do!

by Fred Fuld III

Incase you haven’t noticed, the stock market has been in a downtrend since February 12. There have been a few days when the S&P 500 was up, but mostly we have seen down days, especially this week.

If you are worried that the market is over-priced and we may be heading for a crash or even a long term slow downtrend, there are techniques you can implement to protect your portfolio.

There are several strategies to make money in a bear market, some speculative, and some not so risky. Even smaller investors have ways to protect themselves, and even make money on the downside. We have had a strong stock market for the last twelve years, and many investors think that we are heading into a bear market. Here are several strategies to choose from.

1. Shorting Stocks

This is one of the most speculative ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price, in order to return those hares. The difference between your sale price and eventual purchase price is your profit (or loss, if you buy back at a higher price).

Can you make a lot of money shorting stocks in a bear market? Yes. Is it speculative? Very. Can you lose a lot? Most definitely. This is why it is so risky. When you short a stock, the lowest point it can drop to is zero. Whereas, if the stock goes up, the amount it can rise is unlimited. Let’s say you short 100 shares of a stock at $20 a share. If you put up funds equal to 100% of the value of the shorted amount, and the stock drops to zero, you’ve made a 100% return. However, suppose the stock goes from 20 to 100, you end up losing 400% of your money with lots of margin calls along the way. But even on a short term basis, an investor can lose money very fast.

So in summery, do I think you should short stocks? Absolutely not, unless you are a professional trader. The risk is unbelievable. Look at what happened to the short sellers of GameStop (GME). If you understand options real well, hedged short selling might be OK, as long as you are an advanced trader, and know what you’re doing.

2. Short (Bearish) ETFs

An ETF appeared on the scene several years ago which has become very popular, a type of Exchange Traded Fund called the Bearish ETF or Short ETF. What these ETFs do is provide a return opposite to the return of the index, industry, or sector that it is tracking.

For example, the Short Dow30 ProShares (DOG) provides a return that is the inverse of the Dow Jones Industrial Average. If the Dow goes down 2%, the DOG goes up 2%. The Short QQQ ProShares (PSQ) ETF gives a return that is the inverse of the NASDAQ 100 Index. If you are bearish on gold, you can buy the PowerShares DB Gold Short ETN (DGZ) ETF.

The nice thing about these short ETFs is that your losses are limited. Also, if you are long individual stocks that you don’t want to sell, these can be good for protecting your portfolio on the downside.

3. Leveraged Bearish ETFs

If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices.Some examples include the UltraShort Consumer Services ProShares (SCC) and the ProShares UltraShort S&P S&P 500 (SDS).

In addition there are several triple leveraged bearish ETFs. Direxion Daily MCSI Real Estate Bear 3X Shares (DRV), Direxion Daily Energy Bear 3X Shares (ERY), and ProShares UltraPro Short Russell 2000 (SRTY) are just a few of the many 3X bearish ETFs.

The volatility of these things is substantial, and so are the wide bid and asked spreads that I’ve seen occasionally.

The advantage of these trading vehicles is that they are a way of shorting on margin, with a limit on the downside. The disadvantage is that the losses are quick and large, especially with the triple leverage short ETFs.

4. Bear Funds

It may be hard to believe, but there are actually a large number of bearish mutual funds for the long term bearish investors. These include the Grizzly Short Fund (GRZZX), the PIMCO StocksPlus TR Short Strategy Institutional Fund (PSTIX), and the ProFunds Bear Investors Fund (BRPIX). These funds have minimum investments ranging from $1,000 to $5,000,000.

5. Puts

First, a little about option pricing. Puts and calls are priced on a per share basis, so a put at $1 would cost $100 for 100 shares, or a call at $3.50 would cost $350.

A put is the option to put your stock to someone at a particular price within a certain period of time. In other words, if you own a stock that is trading at 22 and you buy a put at a dollar which gives you the right to put your stock to someone at $20 per share within three months, there are a couple of things that could happen. The stock could tank to $14 a share and you could put your stock at 20, or just resell the put for 6 and collecting the profit. You would be far better off than just doing nothing. And if the stock goes up or stays about the same, you are just out your $100 for the option. Puts can be useful for experienced traders.

6. Cash

There is one other way to make money in a bear market. Sell everything, and keep your money in cash, with the safest way being a T-bill money market fund, that only owns T-bills. (Money market funds that invest in repos are supposed to be just as safe, but I consider them slightly more risky than T-bills.) The advantages are that you can’t lose money and you can receive an income from the investment.

The alternative cash investment is putting your money in a bank certificate of deposit or savings account. Your money is safe up to the FDIC limits, but the interest rate is extremely low at this time.

7. Short Vertical Call Spreads

If you are familiar with options, then short vertical call spreads amy be the best way to go. It is similar to what was mentioned previously about shorting a stock and buying a call to protect yourself, but selling a call spread should tie up far less capital, which should free up funds to give you more diversification.

This involves shorting a call and buying a farther out of the money call at the same time. Assuming both calls are out-of-the-money at the time the order is placed, if the stock stays the same or drops, you make money.

If we are in a bear market, hopefully you can protect your portfolio and make a little or a lot on the downside.

Author does not own any of the above mentioned securities.

Six Ways to Make Money in a Bear Market

by Fred Fuld III

There are many ways to make money from a bearish stock market, some speculative, and some not very risky. And this is a good thing, because smaller investors need a way to protect themselves, and even make money on the downside. This has been a strong stock market for the last ten years, and many investors think that we may be at or near the top. So here are several options to choose from.

1. Shorting Stocks

OK, let’s get this one over with first because it is one of the most speculative ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price. The difference between your sale price and eventual purchase price is your profit (or loss, if you buy back at a higher price).

Have I shorted stocks? Yes. Have I made money from shorting? Yes, especially during the 2008 stock market crash. Have I lost a big chunk of my profits by closing out my short positions and going long, trying to predict the bottom? In the interest of full disclosure, yes. I made the second worse decision I could have made when shorting, and that is predicting the bottom of the market too soon. The worst decision would have been to hold on to my short positions after the market bottoms and starts to make a quick rise. Often when the market bottoms at the end of a bear market, the rise is very sharp and fast, and can totally wipe out short position profits very quickly and then some.

But even on a short term basis, an investor can lose money very fast. A friend of mine, who is a trader, told me that he does a lot of shorting but always hedges his shorts by buying calls to protect himself in case the stock moves up. When I told him that I never hedge my individual stock shorts, he said “You’re kidding! I never give advice to anyone, but I’m going to give you some advice. Never short a stock without hedging. You might be watching the market, then get up and go to the bathroom, come back a half hour later and discover that you’ve been wiped out!”

Even though my bathroom breaks are not that long, he does have a good point. A few months ago, shortly after I shorted a high stock price real estate investment trust (around $100 a share), the position went against me by $13 a share. That’s a $1,300 loss for every hundred shares in one day! I still had the short position after the market closed, and had the pleasure of trying to sleep at night, wondering if there was going to be a takeover the next morning or some other good news that would drive the price even higher, making my losses worse. (As a follow-up, I did make a huge profit. The stock ended up dropping from $113 to the mid-forties after a couple weeks, but that’s another story.)

So in summery, do I think you should short stocks? Absolutely not, unless you are a professional trader. The risk is unbelievable. If you understand options real well, hedged short selling might be OK, as long as you are an advanced trader, and know what you’re doing.

2. Short (Bearish) ETFs

A new financial animal appeared on the scene several years ago which has become very popular, a type of Exchange Traded Fund called the Bearish ETF or Short ETF. What these ETFs do is provide a return opposite to the return of the index, industry, or sector that it is tracking.

3. Leveraged Bearish ETFs

If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices.Some examples include the UltraShort Telecommunications ProShares UltraShort Consumer Services ProShares (SCC) and the ProShares UltraShort S&P S&P 500 (SDS).

In addition there are several triple leveraged bearish ETFs. Daily Real Estate Bear 3X Shares (DRV), Daily Energy Bear 3X Shares (ERY), and UltraPro Short Russell 2000 (SRTY) are just a few of the many 3X bearish ETFs.

Talk about price moves! The volatility of these things is unbelievable, and so are the wide bid and asked spreads that I’ve seen occasionally.

4. Bear Funds

5. Puts

First, a little about option pricing. Puts and calls are priced on a per share basis, so a put at $1 would cost $100 for 100 shares, or a call at $3.50 would cost $350.

6. Cash

The alternative cash investment is putting your money in a bank certificate of deposit or savings account. Your money is safe up to the FDIC limits.

I’ve been putting off writing this article because I kept thinking that we weren’t at the market peak yet. Maybe now that I’ve published this article, it will really be the market top.

Author does not own any of the above mentioned securities.

Two Dozen Ways to Make Maximum Returns from a Stock Market Crash

Today, the stock market, as measured by the Dow Jones Industrial Average, was down over 250 points. The Standard & Poor’s 500 was down almost 15 points, and the NASDAQ was down over five points. Walmart (WMT), a stock that has performed well over the past year, tanked by more than 10%today.

Is this a sign of things to come? If so, there are many ways to profit from a stock market crash without having to incur the unlimited risk or shorting stocks, and without having to buy puts with their own set of limitations.

Another way to play the short side of the stock market is to buy the triple leveraged bearish exchange traded funds. These ETFs provide triple the inverse return of indices. They are available for general market indices, specific industries, and countries.

There are over two dozen triple leveraged bearish ETFs. They have significant volatility, and may have wide bid and asked spreads, and low volume. Plus, the losses can be quick and substantial. They ETFs are designed for short term trading, not long term holds.

Of course, the advantage of these trading vehicles is that they are a way of shorting various indexes without actually shorting an ETF, plus there is a limit on the downside.

One of the more actively traded triple bearish ETFs is the ProShares UltraPro Short Dow30 (SDOW). The average daily volume is 1.3 million shares and the ETF was up 3.16% for the day.

In terms of industries, you have such 3X bear ETFs as the Direxion Daily Semiconductor Bear 3X ETF (SOXS) and the Direxion Daily Energy Bear 3X ETF (ERY).

To access a free list of over two dozen of these investments, go to triple leveraged bearish ETFs.

I Created a Stock Motif Yesterday Called Stock Market Crash

Yesterday, June 9, 2017, I created a motif called Stock Market Crash. A motif is a collection of stocks and/or ETFs which you or other people create. It is almost like creating your own exchange traded fund.

I just felt like the market had topped, so I thought this would be a great motif worth creating on Thursday. It turned out to be a good move since it is up today even though the NASDAQ is down 143 points today.

It contains several bearish ETFs in the portfolio which holds such securities as the Direxion Daily Semiconductor Bear 3X Shares New ETF which was up 12.7% today.

Motifs are great because you can invest for as little as $250. For more info on the Stock Market Crash Motif, go here.

6 Ways to Make Money in a Stock Market Crash

There are lots of ways to make money from a falling stock market, some speculative, and some not so risky. It’s great that these options are available, because small investors need a way to protect themselves, and even make money on the downside. Many traders and investors believe that the stock market has reached a peak. Here are several options to choose from.

1. Shorting Stocks

OK, let’s get this one over with first because it is one of the most speculative and risky ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price. The difference between your sale price and eventual purchase price is your profit.

Can you make a lot of money shorting stocks in a bear market? Yes. Is it speculative? Very. Can you lose a lot? Most definitely. This is why it is so risky. When you short a stock, the lowest point it can drop to is zero. Whereas, if the stock goes up, the amount it can increase is unlimited. Let’s say you short 100 shares of a stock at $20 a share. If you put up funds equal to 100% of the value of the shorted amount, and the stock drops to zero, you’ve made a 100% return. However, suppose the stock goes from 20 to 100, you end up losing 400% of your money with lots of margin calls along the way.

Have I shorted stocks? Yes. Have I made money from shorting? Yes. Have I lost a big chunk of my profits by closing out my short positions and going long, trying to predict the bottom? In the interest of full disclosure, yes. Several years ago, I made the second worse decision I could have made when shorting, and that is predicting the bottom of the market too soon. The worst decision would have been to hold on to my short positions after the market bottomed and started to make a quick rise. Often when the market bottoms at the end of a bear market, the rise is very sharp and fast, and can totally wipe out short position profits very quickly and then some.

Just before the big crash several years ago, shortly after I shorted a high priced stock selling for about $100 a share, the position went against me by 13 points. That’s a $1,300 loss for just one hundred shares in one day! I still had the short position after the market closed, and had the pleasure of trying to sleep at night, wondering if there was going to be a takeover the next morning or some other good news that would drive the price even higher, making my losses worse. Fortunately, the stock crashed along with the rest of the stock market and I ended up making a profit, but it was very stressful waiting for it to happen.

One way to hedge yourself is buy buying a call option on the stock you sorted, to protect yourself in the event the stock rises.

So in summery, do I think you should short stocks? Absolutely not. The risk is unbelievable. If you understand options real well, hedged short selling might be OK, as long as you are an experienced trader, and know what you’re doing.

2. Short (Bearish) ETFs

There is a type of Exchange Traded Fund called the Bearish ETF or Short ETF. What these ETFs do is provide a return opposite to the return of the index, sector, or industry that it is tracking.

3. Leveraged Bearish ETFs

If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices. One example is the UltraShort Telecommunications ProShares (TLL), the Rydex Inverse 2x S&P Select Sector Health (RHO), the UltraShort Consumer Services ProShares (SCC) and the Rydex Inverse 2x S&P Select Sector Tech (RTW).

In addition there are over a dozen triple leveraged bearish ETFs. Talk about price moves! The volatility of these things is unbelievable, and so are the wide bid and asked spreads that I’ve seen occasionally.

4. Bear Funds

It may be hard to believe, but there are actually a large number of bearish mutual funds for the long term bearish investors.

There are many bearish mutual funds, including the Grizzly Short Fund (GRZZX), the PIMCO StocksPlus TR Short Strategy Institutional Fund (PSTIX), and the ProFunds Bear Investors Fund (BRPIX). These funds have minimum investments ranging from $1,000 to $5,000,000.

I’m not sure why anyone would invest in these unless it is for some kind of a long term hedge.

5. Puts

A put is the option to put your stock to someone at a particular price within a certain period of time. In other words, if you own a stock that is trading at 22 and you buy a put at a dollar [puts and calls are priced on a per share basis, so a put at $1 would cost $100 for 100 shares] which gives you the right to put your stock to someone at $20 per share within three months, there are a couple of things that could happen. The stock could tank to $14 a share and you could put your stock at 20, or just resell the put for 6. You would be far better off than just doing nothing. And if the stock goes up or stays about the same, you are just out your $100 for the option. Puts can be useful for experienced traders.

6. Cash

There is one other way to make money in a bear market. Sell everything, and keep your money in cash, preferably a T-bill money market fund, that only owns T-bills. (Repos are supposed to be just as safe, but these days, I would look for the ones that just own the T-bills. I will cover repos in another article.) The advantages are that you can’t lose money and you can receive an income from the investment.

Hopefully, this post will provide you with some ideas to hedge your portfolio in the event the stock market does tank, and maybe even make money from the market drop.

10 Ways to Survive an Upcoming Catastrophe Part 2

12 More Must Have Survival Products

If you missed the article last month that I wrote called 10 Ways to Survive an Upcoming Catastrophe, you should really check it out first.

When you see the news about Brexit, the election, the economy. the candidates, the toppy stock market, the terror attacks, and the shootings, you may be a little concerned. Which is why I wrote about products you may want to stock up on, in the event you have no electricity, natural gas, heat, Internet, or water.

Since I wrote that article, I have received many suggestions of additional survival items that you may want to consider. Here they are.

1. SurvivalSPARK Emergency Magnesium Fire Starter with Compass and Whistle
This is a cool tool The whistle and compass are added bonuses.

2. Cyalume SnapLight Red Light Sticks
These are great because they last for twelve hours.

3. Emergency Survival Mylar Thermal Reflective Cold Weather Shelter Tube Tent
I mentioned the mylar thermal blanket in my previous article. But to compliment that, you should get this mylar tent.

4. Safe-T-Proof Solar, Hand-Crank Emergency Radio, Flashlight, Beacon, Cell Phone Charger The fact that this runs off both solar and hand crank is a great feature. I don’t have this yet but I’ve heard great things about it and I plan to make this my next survival product purchase.

5. Potable Aqua Water Purification Tablets
Have you ever had giardia? You don’t ever want to get it, unless you enjoy spending a week in the bathroom. This will purify water, so you won’t get it from spring or river water.

6. Build the Perfect Bug Out Bag
Do you think you may need to skip out quickly? Get a Bug Out bag, fully stocked. Keep it in your trunk.