October 26, 2023, 1:09 pm EDT
Bear Market Strategy
While US GDP is still as high as 4.9% announced today, stock markets told us that we are entering into bear market bias.
Technical speaking, Dow Jones, S&P 500 and Nasdaq are falling below all trend lines (20,50,200 DMA) now. So, it is fair to say they are in full bearish bias.
Our last article 10/22 mentioned the key support level for Nasdaq which is totally broken. Thus, the strongest tech mega stocks are breaking apart. Indeed, GOOGL, AMZN, AAPL, META, TSLA, NVDA, AMD, MSFT all collapse together with or without earnings report.
We believe this is the beginning of the coming bear market which usually lasts 12-16 months in duration. Therefore, it is necessary to have a strategy in managing the portfolio in order to protect, preserve and even prosper from this period.
Everyone has different investment experience and tolerance so we provide three different approaches. If you do not have much investing experience (less than 5 years) and cannot tolerate the loss of capital, please take conservative one. Having medium experience (5-10 years) and some risk tolerance, please consider the medium approach. For those have investment experience (10+ years) and understand how to manage risk and control market timing, you can consider the aggressive one.
Conservative
Close all opening positions and stay in cash. If you do not lose money during the bear market, you already outperform 90% traders or investors.
Medium
Consider some cash (50%) some positions (50%). The portfolio components need to be in the following categories:
- Defense Sector / Industry: healthcare, pharmaceutical, insurance. For example, UNH, ABBV, MRK, WBA
- High Dividend: 5% above dividend stocks like VZ
- Special Conditions: defense (due to wars), auto parts (because people tend to repair cars rather than buy new car). For example, NOC, GD, ORLY
Aggressive
- Short positions (stocks, ETFs)
- Bearish ETFs 1x, 2x, 3x on index, sectors
- Put Options
We added SQQQ and SPXU two days ago and began to profit out of this downturn. However, it is important for anyone who wants to be aggressive to know that you could lose big time if you do not know much about short, bearish ETFs and put options. You could lose 50% or even 100% in a very short period of time. Avoiding greedy thought and involving only you understand is the key to success in the long run.
