Short-Selling, Puts & Inverse ETFs 02 (Feb 12 - Dec 25)

[winston]

Get Ready to Profit From the Short Side By Jeff Clark

It looks like the stock market is entering a correction phase…

With the breakdown in the high-yield bond market, the sharp recent increase in the 10-year Treasury yield, and the record high level of New York Stock Exchange (NYSE) margin debt, the stage is set for a significant correction.

We haven't seen a 10%-or-greater pullback in the broad stock market since November 2011. So we're certainly overdue for one now. And I think the action we're seeing this week is the beginning of that sort of move…

Take a look at this updated chart of the S&P 500…

Please Enable Images to See this

As of Tuesday's close, the S&P 500 was trading only about 2.4% below the all-time high it made last month. So many folks might argue that it's premature to talk about the market entering a correction phase.

But on Monday, the index decisively broke below its 50-day moving average (DMA).

The 50-DMA is widely seen as the determining point between an intermediate-term bull and bear market. Assets trading above the line are in bull markets. Assets trading below their 50-DMAs are in intermediate-term bear markets.

And on Tuesday, the nine-day exponential moving average (EMA) crossed below the 50-DMA. This "bearish cross" tends to kick off downtrends in the market.

So these are both bearish events.

Traders need to be cautious here with new long positions. It's likely that for the next few weeks, the best money-making opportunities are going to be from the short side.

Having said that… stocks are extremely oversold right now. They don't offer good, low-risk/high-reward setups at the current level…

The NYSE McClellan Oscillator ("NYMO") – a measure of overbought and oversold conditions – closed Monday near the -60 level that points to oversold conditions and often occurs just before a bounce in the market.

It also closed below its lower Bollinger Band. Bollinger Bands measure the most likely range for a stock or index. Any time an index moves outside of its Bollinger Bands, it indicates an extreme move – one that is likely to reverse.

Meanwhile, on Monday, the Volatility Index ("VIX") – the market's fear gauge – closed above its Bollinger Band. This is a sign of extreme fear in the market. When the VIX comes back down inside the bands, it will signal a broad stock market buy signal.

Traders rarely make money selling stocks short into oversold conditions. Even a modest stock market bounce can create losses on poorly timed short trades.

The correct strategy in this situation is to wait for a bounce to relieve the extreme oversold conditions in the market and to set up lower-risk short trades.

For example, a bounce back up to the 2,100 level on the S&P 500 would put the index right at the resistance line of its 50-DMA.

Traders could then short the S&P 500 and profit if resistance holds and the index declines. On the other hand, if the market simply runs right through the 2,100 level, traders can keep a tight stop just a few points above that resistance line and limit the potential loss.

Conditions are oversold enough now for us to be on the lookout for a small bounce in the market. Any further decline today or tomorrow will stretch the proverbial rubber band even farther and set up an even stronger bounce.

After this bounce, it's likely we'll then see a significant decline – somewhere in the 7% to 10% range.

Source: Growth Stock Wire

[winston]

Short Sales Are at Their Highest Level Since the Financial Crisis

By Lu Wang

Source: Bloomberg

[winston]

Hong Kong Short-Selling at Five-Month High Seen as Bullish Sign by Kana Nishizawa

Hong Kong stock traders turned the most bearish Thursday since February, a signal to Forsyth Barr Asia Ltd. that the market is poised to gain.

Short-selling accounted for 12 percent of turnover in Hong Kong yesterday, the most since Feb. 24, data compiled by the exchange and Bloomberg show.

The benchmark Hang Seng Index added 1.2 percent at 1:39 p.m. local time, while Shanghai shares erased a weekly loss as unprecedented policy measures to end the mainland’s equity rout gained traction.

“Shorts have been increasing on fears that Chinese government equity market intervention will fail, and the fallout may stoke a financial crisis,” said Bill Bowler, a sales trader at Forsyth Barr in Hong Kong. “This generally exacerbates any upside moves as latecomer, low conviction shorts unwind.”

Since mid-June, Hong Kong’s market has been hostage to a mainland slump that wiped almost $4 trillion of value off Chinese shares and stoked the highest volatility since 1997.

The Hang Seng Index is valued at near the cheapest versus global equities in more than a decade, with companies from HSBC Holdings Plc to New World Development Co. trading below book value. The Hang Seng gauge has rebounded 8.3 percent from its July 8 low after tumbling 17 percent in less than three months.

China Vanke Co., Pacific Basin Shipping Ltd. and China Singyes Solar Technologies Holdings Ltd. were among the most-heavily shorted Hong Kong companies this week, according to Markit Group Ltd. data.

After short-selling reached a peak on Dec. 3, the Hang Seng Index gained 2.6 percent over the next three days, while a surge in bearish bets in January was followed by a 4.9 percent five-day advance. The measure last week posted its biggest loss since March 2014, and is set for a 2.2 percent rebound this week.

Bearish Options

Options traders are also bearish. One-month puts that pay out if the Hang Seng Index drops 10 percent cost 8.6 points more than contracts betting on an equivalent gain, according to data compiled by Bloomberg as of Thursday. The difference, known as skew, widened last week to the most since June 2012.

“The market was not positioned for the recent decline but has started building downside protection as the price action stabilized,” said Bowler.

Chinese regulators have introduced a series of measures to stop the rout, from clamping down on “malicious” short selling to suspending new listings. It took until July 9 for mainland shares to finally start to rebound.

“We believe that the Chinese government will be able to manage this crisis but there will be continued volatility in the near term,” said Ben Kwong, a director at brokerage KGI Asia Ltd. in Hong Kong. “China’s stock market remains relatively unstable. Investors need to make use of vehicles to hedge against the risk.”

Source: Bloomberg

[winston]

The Ten Most Shorted Stocks of the Dow

Source: Dividend Channel

https://www.dividendchannel.com/slidesh ... mpaign=950

[winston]

Two Simple Ways to Profit From Falling Stocks

By Brian Hunt and Ben Morris

We're in one of the longest bull markets in U.S. history… And lots of folks are worried it's coming to an end.

We're seeing signs of weakness, too…

The uptrend has clearly slowed… And lots of stocks are hitting new lows, even as major indexes (like the S&P 500) are trading near all-time highs.

You've probably felt it in your personal portfolio.

We're not predicting an all-out bear market just yet. But we like to be prepared for the worst-case scenario.

So today, we'll show you two simple ways to profit from falling stock prices. By holding a few positions that profit in a down market, you can reduce your overall stock-market risk.

Let's start with one of the most common bear market strategies: short selling.

In conventional stock buying, you try to buy low and sell high. But when you sell a stock short, you flip that around. You try to sell high first and then buy low.

Here's how it works… When you place the order, your broker loans you shares and sells them in the open market. You get the cash from the sale.

Then at some point in the future, you need to repay the loan… You need to buy those shares and return them to your broker. (This is called "covering" your short.) If you pay more than you earned from the original sale, you take a loss on the trade. If you can buy the shares back for less, you keep the difference and profit.

(Learn more about selling stocks short here.)

When you look for stocks to sell short, you can use the opposite thought process utilized when buying a stock. Generally, you want to buy stocks that have big-picture trends working in their favor. When you sell stocks short, you look for the opposite. Our publisher Porter Stansberry, for example, likes to short stocks with obsolete business models.

Or consider our colleague Steve Sjuggerud's incredibly successful strategy of buying assets that are "cheap, hated, and in an uptrend." Searching for the opposite of that – expensive, loved, and in a downtrend – is a good way to find short-selling winners.

Take former market darling 3D Systems (DDD), for example.

From 2010 to 2014, 3-D printing became one of the world's biggest tech stories. 3-D printing is the printing of solid objects… rather than conventional "on-paper" printing. The industry uses computers and special materials to "print" things like tools, guns, and toys. 3D Systems is one of the biggest players in the industry.

As the promise of 3-D printing hit newspapers and YouTube, folks got excited. 3D Systems climbed from $10 per share to $97 per share, a gain of 870%.

After this run, the stock became outrageously expensive at more than 20 times sales. (A price-to-sales ratio of 10 is very expensive.) In a note to DailyWealth readers, we said it was a dangerous stock and vulnerable to a big drop.

By last October, 3D Systems was down more than 50% from its peak and was clearly in a downtrend. Yet the stock was still expensive at nearly eight times sales.

Please Enable Images to See this

It would have been a great short sale. You could have borrowed and sold shares at $40, then bought them back nine months later for less than $20. That's a $20 profit per share… more than 50% of your short-sale price.

Of course, it's easy to look back and pick an example. It's much harder in practice… especially during a bull market. In DailyWealth Trader, we attempted to sell shares of mall operator Simon Property Group (SPG) and electric-car maker Tesla (TSLA) short. We took losses on both trades…

That's OK. Selling short serves as a hedge to your portfolio. In a bull market, expensive stocks can get more expensive. Even if you take losses on your shorts, your "long" positions will likely be profitable. And, if the market takes a dive, your overvalued short positions are likely to fall more than other stocks. Your profits on your short trades will offset some of your losses.

If selling a stock short sounds too complicated, there's a simpler way to profit from falling stock prices.

You can buy "inverse funds."

Inverse funds can be bought and sold just like stocks… or like other exchange-traded funds (ETFs). But they increase in price when the underlying asset (like a stock index) falls.

It's a way to short stocks without borrowing shares from your broker. For example, the ProShares Short S&P500 Fund (SH) is an inverse fund that is designed to increase 1% for every 1% drop in the S&P 500 Index. The ProShares UltraShort Financials Fund (SKF) is designed to increase 2% for every 1% drop in the Dow Jones U.S. Financials Index.

When you want to buy an inverse fund, look for market sectors that are expensive relative to their history. If share prices start falling, it could be a good time to buy an inverse fund.

Keep in mind, inverse funds can work great for short-term trades… But many of them bleed value over time. (Their gains tend not to match the losses of the underlying asset.) So you should do a little research before buying an inverse fund.

To summarize, short selling and buying inverse funds are two simple ways you can directly profit from falling stock prices. They're tough to get right in a bull market… But they're a great way to hedge the bullish portion of your stock portfolio. If stocks start to move lower, they're two of the first strategies you can use to profit.


Source: DailyWealth Trader

[winston]

Three Ways to Profit from a Market Correction

by Keith Fitz-Gerald

http://totalwealthresearch.com/2015/08/ ... /#deeplink

[winston]

Because puts are now so expensive, the best way to hedge and the best way to profit from any further selling would be to buy “inverse” exchange-traded funds (ETFs) like ProShares Short Dow30 (NYSE Arca: DOG), or ProShares Short QQQ (NYSE Arca: PSQ).

Source: Wall Street Insight

[winston]

Investors Are Betting Big Time on a Fall in Stocks By Dr. Steve Sjuggerud

Bets against U.S. stocks just hit a seven-year high…

You have to go back to the last crisis, in 2008, to find a time when investors were this negative, based on "short interest." (I'll explain this in a second.)

The important thing here is this:

Stock markets don't peak when everyone is scared. Stock markets peak when EVERYONE is optimistic (like in 2000).

Let me explain…

Short interest on companies listed on the New York Stock Exchange (NYSE) just hit a seven-year high. This is the highest level we've seen since the 2008 financial crisis.

You might not be familiar with short interest, but it's a simple metric… NYSE short interest is the total value of all short positions on NYSE-traded stocks.

"Shorting a stock" is simply betting that its price will go down. So when short interest is high, it shows that many investors expect stock prices to fall. Short interest is at an extreme today – and like many indicators we look at, investors tend to be wrong at the extremes.

The chart below shows NYSE short interest over the last 20 years. Take a look…

As you can see, NYSE short interest peaked during each of the last four major stock market corrections – 1998, 2002-2003, 2008-2009, and 2011.

Short interest also tends to increase as stocks are falling, and peak when they've bottomed. Of course, we can't know if short interest has peaked today, or if it will continue higher.

The important thing is, we're already at 2008 levels of investor bearishness… We've already seen a 10%-plus fall in stocks. And investors are clearly scared.

History tells us this kind of negativity tends to occur closer to market bottoms than market tops.

To me, this is yet another sign that the correction that we've gone through in stocks since August is just that – a correction. This is yet another sign that higher stock prices are ahead.

We will continue to follow our trailing stops, in case I'm wrong… But this seven-year high in short interest is just one example of why I feel very strongly that there's still significant upside potential ahead of us in stocks…

Source: www.dailywealth.com

[winston]

The Mother of All Short Squeezes

Last week saw the mother of all short squeezes. It highlighted the huge profits that can be made in a short period of time when the strategy works exactly right.

Before I get to that, a short squeeze happens when short sellers who are negative on a company’s prospects have heavily bet against a stock. They pile in with bearish bets hoping the stock craters at the first sign of bad news.

When the company instead releases good news, such as a positive earnings report, the short sellers run for cover and buy back some of their short position. This buying power forces the stock price up. To add insult to injury, fresh buyers usually come in and bid the stock even higher, which adds to the short sellers’ pain.

This is a strategy we actively use in Forensic Investor.

Two of our current positions are short squeezes. Last week, one of those stocks was up nearly 30% on the day of its earnings announcement. We sold half of this position yesterday for a tidy profit.

But the most violent short squeeze I have seen was in shares of Weight Watchers (NYSE: WTW) last week.

Everyone knows Weight Watchers. The company is well known for its weight management programs.

Recently though, earnings had been under pressure and the stock price got hammered. Trading at nearly $30 a year ago, shares dipped below $4 this summer.

Shorts piled in at the smell of blood. According to data from Yahoo!, nearly 75% of the float (shares available for trading) was short. I checked with a Wall Street loan desk and the cost to borrow the shares was 20% annualized. That’s nutty.

While the shorts were counting their paper profits and the stock price slid further toward oblivion, they didn’t count on Oprah Winfrey coming in and taking a $43.2 million stake in the company.

If there’s ever a game changer for a company, it’s Oprah Winfrey. She’s not just a Personality with a capital “P” – she’s one of the most powerful brands in the world. Tens of millions of people hang on her product endorsements to improve all aspects of their lives.

Not only did Oprah take a big position in the stock, she’s also promised to do joint marketing and branding projects. That’s nothing if not good news for a battered company. It has the potential to be a total game changer.

On that news, the stock shot up 131% last week! The day of the announcement led to a 105% gain.

I haven’t seen moves like that in major companies since the Internet Bubble. The stock went from $6.29 to nearly $20 in three days before settling in at $16.68.

This move buried a lot of short sellers. And it’s a great illustration of how much pain can be inflicted when shorts are wrong.

That’s why we focus on lower short interest stocks when we short in Forensic Investor – that is, stocks that don’t cost your grandmother’s armchair to borrow.

I want to find a losing company that’s not on everyone’s radar. Those who were shorting Weight Watchers at 20% interest were just begging for trouble.

But this is also a great illustration of the sometimes massive gains you can get on the right side of a short squeeze, and they’re not too hard to spot. Just watch what everyone else is doing and go the other way. It’s a strategy we’ll continue to use in Forensic Investor for months and years to come.

Source: Forensic Investor

[winston]

Special Alert: One Trade for When the Markets Fall By Shah Gilani

Where’s the “breadth?”

Fifty-two percent of stocks that make up the S&P 500 are trading below their 200-day moving averages

Take a Small Risk at a Major Pivot Point

Because 18,000 is a pivot point, meaning a point that we were at before, a psychological point, a point where investors have to decide to get back in, get more in, or take profits, it’s a pivot point, a fulcrum point, a point where we can go either way.

I like taking a small risk at pivot points. I look at the big picture and I get all the headline bluster, but I also see that not everything is on solid ground.

That’s why I’m buying the ProShares Short QQQ ETF (NYSEArca:PSQ).

If the Nasdaq Composite, which is what the QQQ ETF follows goes down, and I’m choosing the Nasdaq because it has performed the best lately and if stocks turn tail, investors here have the most to lose, then PSQ, which is an inverse ETF (meaning it goes up if the Nasdaq goes down) will rise in price.

So here’s what we’ll do…

Buy PSQ at $51.75 or lower.

If I’m wrong and stocks rally, I’d sell PSQ at $49.16 for only a 5% loss.

If I’m right, I expect to make maybe 20% on the trade.

Risking 5% to make 20% is a worthwhile risk/reward play for me.

And if I’m right and I see markets weaken, this will only be one trade I’ll have on. I’ll put a lot more leveraged trades on if we start heading down from here.

Source: Money Morning

http://wallstreetinsightsandindictments ... hoo.com.sg