The Volatility Index remains above 20! Inflation is rising! The market is on pins and needles waiting for the next move by the Fed! Reading all the entrails it doesn’t look like a great time ahead for the seasoned investor and would be investor alike. Well folks the Traveling Trader may just have some better news for you about how to ride out these uncertain times and still be able to make a profit! So, how do you predict what is likely to happen next? The Traveling Trader has a few tips on this.
Firstly look at the ten year Treasury yield note and see if it caps out at the 2% mark. If it starts to trend down there will be the potential for a bull run on the market. If the VIX falls below 20 that will show that the market is calming down. Look at the CPI data, if the figures are better than expected then inflation will start to taper off. Of course should the opposite occur, that is a whole other story!
So, taking the best case scenario, what are the best trades you can make at the moment. The Traveling Trader mainly operates in the NASDAQ and S&P 500 and recommends that you put in place hedges against all long term investments in these spaces. The Traveling Trader always uses a credit or vertical call spread as a hedge. If you are an experienced or authorized trader you will know what I’m talking about here. For those who aren’t familiar, the Traveling Trader can educate you into all the mysteries of the market here and here.
What does all this mean? I hear you asking. Basically it means buy the dip, and here’s why. The Traveling Trader knows that if you bought during the last 10% correction in the S&P 500 then you stood to profit by a margin of 15% over the next twelve months. Similarly with the NASDAQ buying during the correction or dip can be very profitable for your portfolio. Buying an ETF on the SPY or QQQ during a dip has historically been very profitable for periods of over twelve months and into the longer term.
Another strategy recommended by the Traveling Trader is to set up an options day trade watchlist. This allows you to track the movement of stocks throughout the day and improve your day trading skills. If you have never heard of Consumer Discretionary Stocks this can be another profitable avenue to explore. Lastly, look at what has happened during previous periods of high interest rates. Only once during 1999 – 2001 did the market perform worse than before the rate hikes. Higher interest rates generally means higher share prices.
So, there you have it from the Traveling Trader it is not necessarily a doom and gloom scenario. If inflation comes down and interest rates continue to trend upwards over the next little while then the market may just be set to explode. If you would like to hear more of the Traveling Trader’s thoughts on these and other matters then please watch the linked video here. A wide range of other videos by the Traveling Trader can also be found here.
