4 smart moves to reduce risk and earn profits in a pullback

April 18, 20136 Comments

Back on March 25th on this blog I noted that we at ValueTrend had increased cash weighting within our equity model to 40%. Through my BNN appearances, Investors Digest and  Moneyletter columns, I made it abundantly clear that the market had been signaling a potential near-termed top.

It was time to take some profits in March, and I do hope that you made some effort to do so. Lets now look at 4 strategies to consider, beyond holding cash, now that this top may indeed have begun.


1. Horizons Managed Futures ETF

I’ve mentioned a few securities that can offer the potential to make profits in a market selloff. One of these securities is the Horizons Auspice Managed Futures ETF (HMF). In fact, I noted on March 14th  (here) that if HMF broke out through $9.50 it would be bullish. The fund did break out, and I initiated a purchase about 2 weeks ago. I added it to my “top picks” list on My BNN MarketCall appearance as well. One insightful reader of this blog noted the large volume spike on the day I bought and called me. We had a laugh over how I was unable to hide my trade given the low volume of this ETF. HMF has been true to form by moving up since the breakout in the face of the recent market drop. It is my opinion that this strategy will continue to offer an excellent diversification with further upside potential in the coming months as and if my short termed bearish market prognosis proves correct.

2. Powershares Downside Hedged ETF

Another security worth watching is the Powershares downside hedged ETF (PHDG). This ETF was also covered on the prior blog mentioned above. PHDG legs in and out of the VIX according to the level and movement of that index. Interestingly, I’ve noted the fund has just begun to outperform the S&P – indicating that its VIX position has been increasing. My thoughts are to enter it when it exhibits a bullish day against a down day for the S&P 500. That might suggest that its exposure to the VIX is enough to offset a declining S&P 500. I do not hold a position in PHDG at this time, but I am looking to buy the ETF on this condition.

3. Lower your beta

As I have mentioned in my prior blogs, the equity you do hold should display characteristics of being lower beta than that of the market. As a quick refresher, beta is a measurement of a securities historic performance relationship to that of the market. Thus, a stock with a beta of 1.5 would typically display about 150% of the movement of the market. A 10% market rise = 15% rise for that stock, and a 10% market drop means a 15% drop for that stock. Similarly, a stock with a beta of 0.5 means a 50% lower increase or decrease than the market produces. In a market correction of 10%, a stock with a beta of 0.5 loses half of that, or 5%. You can see why you want to hold only the lowest beta positions if your view is for a market correction. For those interested, my Associate here at ValueTrend has kindly offered interested readers of this blog to provide a free no obligation analysis of your portfolio’s current beta. Feel free to email Craig at [email protected] to learn more about this offer.


4. iShares 20+ year Treasury bond ETF

Lastly, consider buying a position in the US T-bond. Perhaps the most widely traded ETF in this space is TLT. After almost a year of trending down, TLT looks to be breaking out. A flight to safety may drive money back into this asset class.


  • Hey Keith. Off topic here, but seasonally when is the best time to invest in copper or copper producers?

    • Marek, the normal seasonal period for metals is October to January (buy Oct, sell January) but I must say–everything moves quicker and earlier these days. Case in point–seasonals peaked for the 6 month “best months” cycle in late March early April over the past few years, rather than May. So, I would start watching copper and others in the summer, and wait for that classic bounce off of support and momentum signal that provides an optimal entry point.
      Note–sometimes seasonal cycles of sectors dont work. They are a tendancy, not a hard rule. So you must watch the charts first and foremost. The seasonals merely increase your odds, nothing more.

  • Hi Keith

    I wanted to know what you think of the the tumble in GOLD and SILVER and where do you see the next support. It seems like they want to flush out a little more and maybe bottom out in the summer during their seasonally strong months of the year.


    • it is oversold now–likely a short termed bounce to old support of 1550. ater that–probably more weakness but we’ll have to see


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