Posted February 23, 2021
By Scott Stewart
[TODAY] Profit on Cracks in the Bull Market
Welcome back to the Rude Awakening for Tuesday, February 23, 2021.
We have an interesting trading idea for you today!
In it, youll find out the simplest way to profit on the cracks were seeing in this bull market this week
If youve been keeping up with the education series on asymmetric trading, youll remember one of the components we use in this new system is a hedge, or a short.
We know markets can go one of three ways: up, down, or sideways.
Now, its been giong up for a really long time but you can start to see the cracks with some sell signals coming into play. We want to take advantage of these downturns.
An important thing to remember
What goes UP the fastest usually comes DOWN the fastest
The perfect example of this is the small cap stocks. This is the Russell 2000, and the ETF that tracks these is ticker symbol IWM.
Small caps tend to outperform in the good times and crash even harder in the bad times.
IWM is our preferred security to short.
The challenge that brings, as happens with a lot of stocks, is when you look to short them you sometimes see the flag Hard to Borrow...
What does this mean? And how do we get around it?
Your Loophole for This Hard to Borrow Stock
This nomenclature means what you think: shares of the stock are difficult to borrow, which is the essence of shorting a stock. You borrow it from your broker, sell it to someone else, and pocket the difference.
So, it would be hard to short the IWM
As smart traders, we have an alternative option.
That is the inverse IWM trading security: RWM.
RWM is an ETF that tracks the inverse of the IWM.
If you look at the chart in todays video, you will see its a mirror of how the Russell 2000 has been doing.
Because IWM has been shooting up throughout the past year, RWM is trending much lower. That means its much cheaper.
And because of the cracks in the bull market were seeing today, and the sell signals on the IWM, we can make some profits through buying LONG its inverse, rather than going SHORT on IWM.
RWM is now getting a cluster of buy signals.
This could be an opportunity to start bottom-fishing in a position that would make us money if the markets went down.
How would this appreciate? If the IWM continues dropping as it has been the past few days.
And, if you havent already, get caught up on your asymmetric trading series!!! I promise you wont regret it.
See you tomorrow.
Scott StewartEditor, Rude Awakening