Feeling a Little Better...and some Defensive Strategies

Hey folks,

I'm feeling a little better so I decided to drop by and post some defensive investments and trading strategies that one can adopt in order to navigate through this tricky market...

Defensive Stocks: Defensive Stocks include hospitals, utilities, supermarkets, food and household ware stocks and so on. These are boring, low-key investments that mutual funds and institutional investors bury their money in until the markets bottom out. When the markets bottom, they usually cash in from these prospects and invest back into stocks that are bottoming out or building bases.

Shorting Stocks: Only short big name, established companies that have a low probability of being acquired or bought out. I have mentioned a few shorts during the past few days. The big institutional banks are good shorts, AIG, MET, and many others. The key to finding good shorts- 1. Look for stocks that have posted lousy earnings. The worse the better. 2. Short stocks that are technically breaking down from key moving averages on inflated volume. For a safe short, short only if the stock is failing to hold onto the 50 day or 200 day MA on average, above average to heavy volume. Sometimes, the volume will be low and quiet. Alternately, you can also short the current markets big winners that are topping out. In these cases, look for the stock to break shorter term support such as the 10 and 20 day MA. Playing shorts by the 10 and 20 day MA is riskier and should be done by those with shorting experience. 3. Do not short low float stocks or stocks that have a high probability of becoming LBO or acquisition targets. Stocks such as these have attractive products, or services that are larger or more established competitor would like to acquire. An example to illustrate this is UA (Under Armour). I would never short UA because to me, it has a high probability of being acquired by a competitor (such as NKE for example).

Inverse Mutual Funds- Inverse Mutual Funds or Bear Funds are a great way to ride the market wave down. There are many more offerings cropping up at various institutions. Check out Inverse funds by ProFunds, Rydex, Direxion and others.

Shorting ETFs- Not my favorite shorting strategy but it can give you a small return which of course, is better than nothing.

Inverse ETFs- ProShares, a division of ProFunds has come up with a line of inverse ETF's. A popular one is the QID.

Futures Contracts: One can short Dow, NASDAQ, Russel and S&P futures for profit and gain. One can also buy 10 year Treasury note futures that usually appreciate in value when the market is in the dumps.

There are many more strategies that I am familiar with, but this should be enough for most of you in order for you to generate plans and ideas of your own.