The Bottom’s Not in Yet… Here’s How to Make Money While You Wait

We took some big lessons from the Money Morning LIVE trader's summit we just closed in Chicago (by the way, watch your inbox for replays - hot stuff.)

One of the biggest lessons was this: Capitulation, the moment where investors throw up their hands and stop trying to buy the dips, has simply not happened yet.

The market remains vulnerable to more downside simply because people who bought after the pandemic broke, investors who have impressive gains on paper, are treating the market like its Bitcoin circa 2013.

That also means there is a persistent degree of volatility, and it doesn't look like it's going away anytime soon.

Now, high volatility is most often associated with downward trending prices. So there really isn't any way of getting around it. Prices are more likely to fall than to rise.

Fortunately, there are ways to play both the market tumble and volatility to your advantage, both in terms of short-term trades you can do now, and in setting yourself up for success with the eventual rebound.

Let me show you what to do...

Play Both Sides of Volatility with These ETFs

There's a new ETF in town that should be on the radar of every investor right now: the -1x Short VIX Futures ETF (BATS: SVIX) from Volatility Shares LLC.

From their website: "The Short VIX Futures Index expresses the daily inverse performance of a theoretical portfolio of first and second month VIX futures contracts that are rolled daily. The Index determines its daily settlement price from the Time Weighted Average Price (TWAP) of its theoretical portfolio over the last 15 minutes of the regular equity trading session."

In essence, what this means is you don't have to open a futures account and short the VIX futures if you want to benefit from the VIX falling lower. Now you can just buy this ETF.

That said, you may not want to go out and buy a bunch of this just yet. As I said, the volatility we're seeing right now is persistent, which means the VIX is bound to stay level for a while, as we continue in this yo-yo pattern of small bumps followed by further downturns.

But think about it for a minute: If the VIX is inversely correlated to the S&P 500, shouldn't an inverse VIX fund be positively correlated with it?

Turns out that's exactly what happens. So right now, the much smarter move is in the good old SPDR S&P 500 ETF Trust (NYSEArca: SPY). Let me show you a comparison chart:

What I did here is put SVIX in as the bars, and SPY in the background as black and white candles. What you see is that the inverted VIX index is holding flat, while the S&P 500 continues to fall.

Option market makers seem to be saying that the SPY may make a little rebound here, but that the level of volatility will still remain high. Trading SPY, especially options spreads, lets you make money off those bumps as we continue to sink toward capitulation.

As the market rebounds, the VIX will absolutely start to come down, and depending on how the recovery goes, it could happen very fast. When that time comes, anyone with money in SVIX is going to see skyrocketing returns.

It's more important than ever for investors to find solutions that can help counteract the volatility we've seen this year. As interest rates rise and the market teeters, banks are one area where investors are taking refuge.

But we've identified two other key market sectors where a new flood of buying is going to create opportunities for potentially massive profits, especially in small-cap stocks that often get overlooked by the major players.

Money Morning Chief Investment Strategist Shah Gilani has a strategy to narrow thousands of these stocks down to the few with the biggest potential to be the next market winners.

You can get all the details here...

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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