I’m bullish on U.S. stocks over the long term, but there will be plenty of big down moves along the way.
We’ve just experienced a historically bullish move for the first two months of the year, so it may be time to expect a correction.
Which index could you sell and when. Yes, puts would work too.
First, using discipline with your stops is always very important. This even more true when you’re shorting.
Second, this trade may not happen. Trade smart.
The premise of the trade is that the Russell 2000 ETF (IWM) may rollover at its 200-day moving average. The current chart is setup with a clear “breaking” point.
If the IWM does not trade below the breaking point, then there is no reason to short it.
The breaking point is 156.
The trade set up is to sell IWM under $156 with a stop over $158.50.
Another stop would be to wait until it trades back over its recent high of $159.50.
The reasons for $156 as the breaking point are based on the fact that it will be under the 10-day moving average, and $156 has been a level that the market has respected several times.
Most importantly $156 will represent a substantial move below the 200-day moving average after a weak attempt to break above it.
This trade setup does not have to be taken as a trade to be helpful in your trading. For example, I will use this break to indicate that my bullish stance on the market should be changed to a more cautious one.
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation