Lead-Lag Report: Chris Vermeulen on Market Timing, ETF Strategies, and Navigating Economic Downturns
After rallying for six straight weeks, stocks look overextended. They’re ready to take a break. That could mean a minor market downturn. Going into next year, there’s a higher chance for a 10% pullback or more.
This kind of downturn can hurt investors who simply buy and hold. Or who only trade assets they expect to go up. However, for investors willing to employ hedge trades, a market downturn can help boost total returns.
For instance, right now the stock market is soaring higher. But, technical indicators warn of a slowdown. One such sign is the relative strength index. When the market moves too far at once, the reading can become overbought.
While that may not mean a big pullback, it could mean several days of the market trading weakly. For bullish traders, that slowdown in momentum can make trading a challenge. But for investors with hedge trades, it can mean an opportunity to profit from another corner of the market.
Gold has also performed strongly. The metal has topped $2,700 per ounce, and has outperformed the S&P 500 index this year.
But even gold can show signs of a slowdown and has some pullbacks along the way. Understanding how far gold is likely to pull back can create a buying zone. Investors and traders who buy at those zones can create an even bigger profit when gold rallies again.