Saturday, January 10, 2015

The Next Big Stock Market Crash

Hey Folks,

Once again it has been awhile since my last post. Happy New Year to everyone. I'm not going to make any promises about more frequent posts this time.
The markets have had quite a run since the '09 lows but all good things must come to an end. I believe we are at the beginning of a significant market sell off. What will the catalyst be? Maybe a student loan crisis, rising rates, collapse of the dollar, terrorism or political unrest. I have no idea. All of my opinions are based on technical analysis not news or events.

I believe that SPY(SP500 ETF)will be cut in more then half over the next 1 - 2.5 years or so. My target is 85 and it's currently trading at 204.

So what do you do? If your portfolio is with a broker, typically you can only have 10% of your portfolio short. You could buy SDS which is a
n inverse ETF for SP500. So as the SP500 goes lower SDS goes higher. If you have a portfolio of stocks, you could use options to "collar" the position off. Here is how that works. Let's say you own 1000 shares of CBS at $55. You would sell 10 Jan 2017 65 calls at $4 giving you $4000 to buy 30 Jan 2017 35 puts at $1.30. Then if CBS falls to $25 over the next 2 years, you break even plus you keep the dividend. If you didn't hedge your position you would be down $30,000.

I may be a little early since the longer term moving averages are still trending up and have not started to flatten or roll over yet but i feel the top is already in. With this pattern we should move lower towards the October lows then run back up and then the big sell off begins. So time frame wise maybe March.

Thanks and Good Trading,


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