The markets have been in a strong uptrend for the past six and half years. More than likely during this period most swing trend trades have been long to take advantage of the uptrend. The past few days we have finally seen volatility come back into the markets after 44 days of very quiet trading.

Traders are concerned what will happen to the markets if the Fed raises interest rates. There is also concern about the outcome of the presidential election in November and international economic concerns. When should we flip the switch and go short?

Well, I do not think it is a flip of the switch. I believe it should be a transition.

Reduce the amount of your account in long trades and start to increase the amount in short trades. When taking long trades, focus on symbols that trade without the influence of the overall markets - symbols that continue to have a strong uptrend. I like to use the 100-day moving average. Looking at the chart left to right, is the 100MA still in a strong trend? If yes, this is a symbol currently not effected too much by the overall market movement.

See the example of Amazon (AMZN) below on the daily chart.

AMZN daily

When looking for short trades, look for symbols with the 100MA in a downtrend and price below the 100MA. Also, look for entries just under support. See the example of Diamond Offshore Drilling (DO).

DO 100MA

Another way to play the short side is using inverse ETF’s. You cannot short ETF’s or stocks in an IRA or 401K account. This is the reason inverse ETF’s came about. Inverse ETF’s allow you to take a long trade to short the markets. Below is a list of the 30 highest volume inverse ETF’s.

30 highest volume inverse ETF’s

Here are a couple of things to consider when trading inverse ETF’s. First, some of these are leveraged 3X. Price will move three times as fast in either direction. The second thing is inverse ETF’s should only be used for shorter durations, like swing trading for a few days to a few weeks. Do not buy them and hold on to them. Inverse ETF’s are adjusted on a regular basis and over a longer period of time could have a negative effect in the price of the inverse ETF.

I hope this was helpful.

Simpler is Better,