2 Key Ways to Sidestep the Sell-Off
“I’m worried, Jess. Should I be getting out of the market now?”
My mom called me on Friday panicking about a crash. It was completely understandable. She kept watching the wild market action this week, and it hasn’t exactly been pretty.
In fact, we just saw the first correction since early 2016 on Thursday.
That’s when the S&P 500 dropped 10% from its record January high. After this never-ending bull party pushed the market up for an unprecedented 15 straight months, it was a shock to some investors.
It’s kind of like someone came into a raging club of underage drinkers, yelled “The cops are coming!” and watched as the record scratched off the needle, beer glasses shattered on the floor and people flew toward the exits.
Then, on Friday, the market seemed to pick up all the broken beer glasses, with the S&P 500 lifting 1%. But then that guy yelled about the cops again (doesn’t he have anything better to do?) and the market plummeted before heading back up.
Now, the overall market breadth is negative. The number of rising stocks outnumber the falling ones by 1,669 to 1,291 on the New York Stock Exchange and 1,507 to 1,346 on the Nasdaq.
Like my mom, investors are understandably worried about what this all means. In fact, the CBOE Volatility Index — also known as the “fear index” — jumped to a two-year high.
So if you’re also wondering if you should flee the party, let me tell you what I told my mom:
“Don’t panic. The economy is still revving, so a bear market isn’t likely. It’s just time to be cautious and maybe adjust your strategy because this sell-off might not be over.”
After all, there are a number of ways to take advantage of declines…
How to Escape Any Market Bloodbath
Today, I want to tell you about two strategies you can use to escape any market turmoil — now or in the future.
Escape strategy No. 1: Start looking for stocks that will continue to see high demand. That means keeping your eye on growing sectors that are set to weather any market action. Here are two that you should have in your portfolio now if you don’t already:
- Internet of Things (IoT) stocks: You’ve probably heard us talk about the IoT revolution before. I, for one, keep coming back to it because there’s just a simple, clear reason for this market to keep growing: It underscores the evolution of our society.
Smart technology makes life cheaper, simpler and safer. That’s all there is to it. And businesses know that. That’s why Grand View Research just projected the global IoT market will reach $933 billion by 2025. Innovations such as cloud computing are driving that.
You can read more about taking advantage of that revolution here.
- Cybersecurity stocks: With the IoT boom, cybersecurity is sure to continue rapidly evolving as well. With new smart technology, there are always going to be new ways for cybercriminals to hack their way in.
That’s why this industry is projected to become a $232 billion global market by 2022. The rise in 2017 just underscores that projection: Last year, the global market reached $137 billion — a wild compound annual growth rate of 11%.
So start looking into cybersecurity stocks — companies that are implementing new ways to stop hackers in their tracks. You can read more about those companies by clicking here.
Escape Strategy No. 2: Start considering a short-term put-option strategy. This is a great way to profit when the markets — and individual stocks — fall. That’s because a put option increases in value as its underlying stock falls. Meanwhile, your risk is limited to the amount of money you put in.
I’m a big fan of puts. If a stock falls by, say, 6%, the put option you bought on it could shoot into a triple-digit gain. All while other people wring their hands in worry.
With market breadth turning negative, there will be more opportunities to make money from downtrends. So start learning about this strategy if you don’t know about it yet.
He’s made gains such as 250% using puts before, so you can see the possibilities here.
Of course, there are many other strategies out there, but these are a few that will keep you ahead of the pack as Main Street investors panic.
Catch you next week.
Managing Editor, Banyan Hill Publishing