What is the Top Plan For Bear Market Investing?

The past was a horrible time for the market as decline fears scared away all the buyers. The Institute of Supply Management published a crucial index viewing that non-manufacturing concern interest fell Hugely. The Dow Jones Industrial Average followed suit, down 370 points or almost 3%. It was nasty and lots of people were losing profits.

I hope you listened to our alert.

The 200-day moving average had just bowed negative. When this last occurred, we Had a two-year recession in the market. We warned of rough era ahead.. . Who thought we would be correct so fast?

Looking at the full market, not a single sector was up. Conjecture who hurt the worst? That's right; the economic services industry posted a loss of 4.6%. They were outdone only by the construction & supplies industry which lost 4.8%.

I'll say it again. Stay away from the fiscal and construction industries for now. I know they are dealing at multi-year lows and appear to offer desirable dividend yields, but they are classic estimate traps. The bad news continues to filter in, losses are mounting and you won't make money being premature on this trade.

How can you profit in a bear market?

The secret to making money on the long side right now is short-term trades. Don't kid yourself. We're in a bear market, and the rallies will be short lived. Positioning your portfolio for a bear market is not difficult. Take a few moments and do it today.

One of the best ways to hedge a portfolio and profit from downside movement is through Inverse ETFs. The Proshares Short S&P 500 (SH) ETF is one of the best. As a matter of fact, you could have purchased this inverse ETF on Friday for $64. On Tuesday it traded for more than $66. That's a quick 3% on your money in just a few days.

I honestly like Inverse ETFs. They allow you to "short" the whole market in a single transaction. You don't need a margin account to place the trade. And, unlike open-end mutual funds, you can enter and exit your trades at any time during the trading day.

Although Inverse ETFs are relatively new to the markets, they have become widely used. For example, the Proshares Short S&P 500 (SH) was established in June 2006. Average trading volumes, however, are in excess of 563,000 shares a day. This liquidity makes the Bid/Ask spread tighter which helps us minimize our trading costs.

One word of Warning. These funds are collected of many underlying stocks. The estimate tends to fluctuate more than normal at the open and close of the market. Sometimes, these ETFs start trading as much as 15 minutes after the market opens. As a general rule, I suggest placing orders at least an hour after the open or an hour before the close.

Remember, we can manufacture money in a bear market. We just need to be suitably positioned. Inverse ETFs are a great way to accomplish this.