How to Profit Safely and Smartly in This Slowing Market

The number one stock market rule, the indispensable, go-to rule, the Golden Rule, the only rule to follow even if you're a rules-breaker, is...

The trend is your friend.

If the market's trending up, you play it from the "long" side, meaning you buy and hold stocks, including the whole market in the form of an index ETF.

If the market's trending down, you get out and go "short," meaning you sell the market by selling short an index ETF, or you buy an inverse market ETF that goes up in price when the market goes down.

Making money is easy. The hard part is figuring out whether the trend is turning.

But there are ways to play it safe by being in the game - long or short - and being cautious at the same time.

Now, I've been a raging bull, and I still am bullish. But, all of a sudden, I'm leaning towards heavy caution.

But I'm taking some concrete steps to make sure my readers and I cash in no matter what happens.

You can, too...

I Saw This Coming

Forgive me if I say it, because I'm not the kind of guy who says, "I told you so." But if I was, I'd sure be saying "I told you so" now.

Joking aside, I've been right about the market; I've been all over the financial cable news with bold predictions that have been dead-on right - even when no one else was willing to commit themselves to a guess.

When the Dow Jones was at 19,000 and every analyst and market pro was being asked if it was going to get to 20,000, I said, "Not only will it get there, it will blow through that and get to 21,000 right away."

Obviously, we got there. Pretty much as I said we would.

Now, here's my secret to being right. It's a not-so-secret kind of secret you can use that works every time.

I don't have a crystal ball. I figure out which way the market is going because it shows me.

It will show you, too. It shows anyone who's watching it the direction it's going.

Why It Was Easy to Call 21,000

Going into the election, of course, everyone was super cautious. In fact, most big investors were on the sidelines - if they weren't betting on a Hillary Clinton victory and the market bumping higher on that possibility.

So, there was a lot of money waiting to go to work.

And then BAM, Donald Trump wins.

When the futures tanked on his announced victory, then rallied like the dickens hours later when he made his victory speech, it was "off to the races" for stocks, at least the whole market based on indexes.

All you had to do was watch the market make a U-turn and rally with all the sidelined money waking up.

It doesn't have to make sense. The market often doesn't make sense. It's the market. It does what it does. Don't get hung up on figuring out what you think it's going to do. Watch it; it will point you in the direction it's going.

Follow along, and you'll end up with bigger profits.

There's a human-analytical side, too: group psychology.

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I figured the market was going up because investors believed Trump would cut taxes, reduce regulation, enact some stimulus programs and get corporations with a couple trillion dollars overseas to bring some of that money home to sow seeds with here.

The markets all pointed higher, and I said that's what they were doing.

We've made a bunch of money this month alone in my Capital Wave Forecast and Short-Side Fortunes trading services: four 100%-plus gains, including a 150% and a 200% profit. Good for us. Good for you if you own stocks or index funds.

But now the market's drifting sideways...

Be Bullish, Be Prudent, Be in the Black

It hasn't been sideways for long, but after a huge run-up, whenever the market takes a breath, you have to ask yourself: "Which direction is it pointing now?"

Generally, based on a huge trend move, like the massive bull market we've had since 2009 and the dramatic bull run since the election, the market tends to want to keep doing what it's been doing.

Yes, I think there's a lot more left in this bull market - a lot more. But I'm cautious because the market's telling me to be cautious.

The expectations investors have about what a Trump administration can do are being sorely tested.

That's why the market's going sideways right now. Sure, there are lots of particulars to look at, analyze, and make assumptions about.

But what do you do with your assumptions? Do you bet them?

Not if you're cautious. Not if you don't know for sure. And I know I don't know for sure.

The thing to do now, what we've done in Capital Wave Forecast and Short-Side Fortunes, first and foremost, is tighten up all our stop-loss orders.

We're sitting on a lot of nice gains. We've already gotten stopped out on some of the big gainers we rode to new highs. Most of the rest of our long positions are protected with stops. There are a few that aren't, because we want to buy more shares at lower prices, if we can. Those are "core" positions that we want to own for the long run. Positions I believe will double and triple, and a few that will quadruple.

We are holding onto the cash we've taken out of the market to put to work when the next direction becomes clear.

There's no point in taking speculative positions right now, either on the long side or the short side.

That's if you're cautious. If you're a gambler, now's a good time to make a few bets. Just keep a tight lid on your losses if you're wrong.

The question I'm always asked about timing is: "How come you try and time the market, don't you get left out when you're wrong and watch the market move without you?"

My answer is: "Yes, sometimes the market continues in the direction it was going before we got out, and we might have left some money on the table. But we get back into stocks that were doing well before. We may have to pay up a little more for them, but we're buying with the profits we already banked. We can live with that."

On the other hand, if the trend is changing, even for a short while, like a mini-correction, we are happy to be in cash and ringing the register with our stops on profitable positions on the way down.

If the market points downward, you bet we will start adding "short" positions. If it keeps going down, we'll add more to our shorts. You can make a lot of money following the market down.

But the market's not going down now. It's going sideways. That's why I'm cautious and happy to have our portfolio protected.

You can't go wrong this way. The only mistake you can make here is trying to outsmart the market when you know you don't know.

We'll all know soon enough which way the market's going next. It will point us in that direction.

Are you watching?

You can get Shah's free research service, Insights & Indictments, by clicking here. You'll get his latest investor briefing on one investment he believes will soar in the Trump era.

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About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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