Toothpaste: check. Clothes: check. Book to keep me from snoring on the plane: check.
Raincoat … eh, why not: check.
As you might have guessed, I’m in the middle of packing for another trip. This time, I’m headed to Atlanta for the weekend.
I don’t know about you, but no matter how many times I fly, I still go over my packing checklist. And every time I get to my rain-gear section, I pause.
Do I really need the raincoat taking up room in my tiny carry-on luggage? How likely is it that a deluge hits the city The Day After Tomorrow-style?
My weather app says it’s unlikely. But I can tell you the last time I left my raincoat at home, I ended up standing on the Giant’s Causeway in Northern Ireland soaked to the marrow as bursts of rain and wind sailed up the coastline. Not a fun moment.
But, ultimately, that taught me a big lesson: It never hurts to be prepared.
And it’s a lesson I’ve never been more aware of than now. Not only with my packing, but also with my portfolio. See, I’ve been talking to systems expert Michael Carr this week about the market’s direction.
Things are looking, well, stormy.
In fact, a number of bear-market signals have started appearing, which indicates that we might already be in a bear market.
Here are just a few he told me about earlier this week:
- Length of Correction: Stocks have been unable to rally off their lows. The length of the correction is now above average — lasting 67 trading days. The average correction lasts only 51 days.
- Odd Earnings Season: Earnings season is not boosting stocks the way it should. Over half of the companies in the S&P 500 have reported earnings. About 80% of them have beat earnings-per-share (EPS) estimates. This is above the one-year average (74%) and the five-year average (70%). However, companies beating EPS estimates are up an average of just 4% based on the change from two days before the earnings release to two days after. The five-year average price increase is 1.1%!
That failure to rally in line with expectations is a sign of a bear market.
- Breadth Remains Bearish: As of Wednesday’s close, 48% of the stocks in the S&P 500 were above their 200-day moving average. That means 52% are in long-term downtrends.
- The S&P 500 May Hit a Critical Indicator: The S&P 500 is now testing its 200-day moving average. Once it closes below that moving average, the overall market trend is down.
This isn’t good news. Ultimately, when bullish news fails to send stocks rallying … it means you should start preparing your portfolios.
In other words, you should be looking for your raincoat … and soon.
So that brings me to our market raincoats. How exactly can we protect ourselves from what’s brewing? Well…
Here’s Your Bear-Market Protection Plan
You may have heard me say this before, but I’ll say it again because I think it’s important: If you don’t have a put-option strategy in your pocket, you need to consider one now.
More specifically, you need to consider a short-term put-option strategy. It’s a great way to profit when the markets — and individual stocks — fall.
As you may know, a put option increases in value as its underlying stock falls. Meanwhile, your risk is limited to the amount of money you put in. (That means you’re saved from the unlimited risks of another bearish strategy, short selling.)
Let’s say a stock falls by 4%. The put option you bought on it could shoot into a triple-digit gain. All while other people panic.
With four bear-market signals flashing, there will certainly be more opportunities to make money from downtrends. So I urge you to look into this strategy.
Michael already started implementing his put-option strategy in his Precision Profits trade recommendations. And it’s working out well.
For example, when the market slipped 1.34% last Tuesday, an equal-weighted portfolio of three Precision Profits positions gained 3.3% — thanks to put options.
Better yet, on April 19, his readers grabbed a 50% gain in about four trading days. Shortly after, they made a 105% gain, then a 50% gain. And on Friday, they grabbed another 50%. That’s about 255% in total gains in about two weeks — thanks, in part, to put options.
Here’s what some readers had to say about that:
Tom H. writes: “Great trade. Cleared a little [over] a $1,000 in just a few days.”
Bob B. writes: “Your instructions are very easy for me to understand. … I sold half at 114%. Keep up the good work.”
Dan Y. writes: “I have been a subscriber since December of 2017, and I have enjoyed your podcasts and the clarity of your trade alerts. … As per your trade alert, I bought the trade, and it triggered at 50% to sell half.”
Mary W. writes: “Firstly, I’m really enjoying your service and learning a lot from your advice. I’m a new investor; options can be complicated, but you make them quite easy to understand. Over the past few months, I have learned my own tolerance to the volatility. … I closed my option with a 73% gain, which was most welcome.”
Bearish Strategy
So if you don’t have a bearish strategy in your portfolio, now is the time to start looking. I urge you to do your research. Find a system you trust. You don’t want to be left outside, unprotected, during the storm.
To get started with your research, just click here.
Catch you next week.
Regards,
Jessica Cohn-Kleinberg
Managing Editor, Banyan Hill Publishing