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As I'm sure all of you know a friend of mine - Kenny Glick - continues to make the claim that we are in a bull market.
He says to avoid shorting the Invesco QQQ Trust Series 1 (QQQ) because the market is never going to go down...
Me being a notorious bear in today's market, I've been hesitant to agree with him, but after spending a day pondering the idea and sentiment behind his statement - I think I'm ready to say that I agree with him... sort of.
You see all ETFs do not trade equally, and this simple lesson will teach you how to either leverage or avoid a market hot spot.
So, when I was a young kid, they had this announcement on the TV just ahead of the 10:00 news every night that asked parents "It's 10:00, do you know where your kids are?". It was a simple and effective "rule" in the "book of parenting".
There's an equally simple rule from my Book of ETF Investing... Do you know the ETF you're trading?
If you don't, you need to... Especially in this Bifurcated Market
Over my 25+ years of trading, I've had trades that have gone well and some not so much, all based on a single headline.
For a short-term trader, a headline can make the difference between a good or an epic trade. Take NVIDIA today. Their earnings headlined popped the stock more than 30% at its highs of the day. That's an EPIC headline trade.
QQQ popped almost 2% on the news.
For the investors that had no idea NVIDIA was reporting earnings, it's a windfall.
For those shorting the QQQ because it just feels "too lofty" - it's a gut punch. But it gets worse for those bears when you look at the breadth of the QQQ gains.
So, how can you go about avoiding the headline risk, taking yourself away from the hard euphoria-causing drug that is an unwarranted rally you're seeing in QQQ?
Well, your best option is to dig into an ETF that doesn't allow a select few companies to carry its water...
In this case, I'd suggest the iShares Russell 200 ETF (IWM) - full disclosure, I'm short the IWM right now and it's making me some serious cash.
The IWM CJ, really?
YES! It opened the day's trading more than one percent lower.
But, why? Well, a few reasons. First, the IWM does a better job of representing the real market.
The market is struggling with faults over banking failures.
The market is struggling with failures over a slowdown in the consumer, the same consumer that drives 70% of our economy.
And yes, the market that is struggling with the very real likelihood of a recession.
By the way, that last point? Germany officially announced that their economy was officially in a recession this morning, the night after Fitch announced that the U.S. Debt was on credit watch. Of course, none of that matters because A.I.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.