As you have known, we are prepared for the increased probability of a bear market (drop below 3,855), states Steve Reitmeister of Reitmeister Total Return.
Yesterday’s drop below certainly looks like the real deal with likely more downside FOMO rally to follow. Thus, I want to make the next trades which is essentially to sell every long stock position to make more money from our inverse ETF positions as well as the rising rate trades (TBT & RISR):
Here are today's trades:
- Sell all shares of APA Corp (APA)
- Sell all shares of Avnet (AVT)
- Sell all shares of Bloomin Brands (BLMN)
- Sell all shares of Clean Harbors (CLH)
- Sell all shares of Dropbox (DBX)
- Sell all shares of Microsoft (MSFT)
- Sell all shares of VanEck Energy Services (OIH)
- Sell all shares of Shutterstock (SSTK)
Net-net we are now 56.5% short the market (even though it only took 25.5% of our cash to make this come together thanks to the use of leveraged ETFs). Plus we have a 15% allocation to ETFs that gain in value as rates go higher (which is still one of the best trades in town as the Fed will need to be very aggressive going forward in raising rates to rein in rampant inflation). The remaining money will sit in cash for now.
This may seem very aggressive to be this short the market...but not really when you consider the average bear market leads to a 34% decline and we just clipped over the -20% line. And as shared before, I suspect this bear will have a bit more than a 34% decline given the very high PE found at the peak in January before the sell-off began.
So if down is much more likely than up...then the only way to make money is to short the market. Hence our portfolio allocation. The only head-scratcher may be selling the energy stocks which have done so well. But note the size of the sell-off in those shares today. That is because historically a recession leads to lower demand for energy which begets lower prices. So it's time to take our energy profits off the table too.
As always, we will continue to monitor the situation closely. That includes assessing whether any subsequent rally is the real deal or just another bear market bounce. And in time taking profits on our short positions and preparing for the next bull market.
Meaning the bear market is just like winter. It doesn't last forever. Soon enough, the ice will melt and a new bull market will spring forth. We are just using the right strategies for the season at hand.