3 Defensive ETFs Poised for Profits

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Stocks are stalling as the historic rally out of the Oct. 15 low grows increasingly vulnerable.

defensive etfsA multitude of technical indicators are deep in extreme overbought territory. Bullish sentiment is off the charts. And the S&P 500, through Thursday, enjoyed 20 consecutive days above its five-day moving average — something that has only happened three other times in the last 20 years and was followed by medium-term weakness.

The evidence is growing that insiders are preparing for trouble, with big catalysts on the horizon, such as a possible showdown between President Barack Obama and congressional Republicans over the continuing budget resolution early next month as a consequence of expected executive action on immigration. The situation in Ukraine also is heating up, with ongoing reports of Russian troop movements into the area.

Outside of stocks, other areas of the market are warning of trouble. High-yield bonds have tipped into a new downtrend for the first time since October. Industrial commodities such as copper and crude oil are collapsing in response to weakening economies in Asia and Europe, among other things. The options traders are bidding up put option protection against lower stock prices, pushing up the CBOE Volatility Index (VIX).

In response, I’ve recommended my newsletter subscribers grab exposure to these three defensive ETFs poised for profits:

Defensive ETFs Poised for Profits: iPath S&P 500 VIX Short Term Futures TM ETN (VXX)

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Over the past week, the VIX has decoupled from the stock market (which it normally trades in an inverse relationship with) to march higher in a clear indication of growing nervousness in the options market. As a result, the iPath S&P 500 VIX Short Term Futures TM ETN (VXX) fund moved higher for four consecutive days through Friday — something that hasn’t happened since last November.

In response, I’ve recommended call option positions in the November and December VXX contracts to Edge Pro subscribers.

Defensive ETFs Poised for Profits: SPDR Gold Trust (ETF) (GLD)

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Gold and silver enjoyed a surge of buying interest on Friday on reports that the Nov. 30 Swiss gold referendum could pass by a narrow margin as well news that Russia is stockpiling gold reserves in a possible prelude to an economic currency war.

The precious metals have had a tough time of it lately on simmering deflation fears — driven by the drop in crude oil prices — but that ignores gold’s role as a safe haven asset in addition to being an inflation hedge.

I recommended the November and December $112 SPDR Gold Trust (ETF) (GLD) calls to my Edge Pro subscribers on Nov. 7, which are carrying a one-week gain of 68% and 52% respectively.

Defensive ETFs Poised for Profits: iShares Barclays 20+ Year Treasury Bond ETF (TLT)

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The slowdown in global GDP growth, the U.S. dollar’s ongoing strength and the end of the Federal Reserve’s QE3 stimulus have all combined to keep a lid on U.S. Treasury bond yields. Because of the inverse relationship between bond price and yield, that has helped lift U.S. Treasury prices, benefiting the iShares Barclays 20+ Year Treasury Bond ETF (TLT).

I’m looking for a breakout above the $120 level that has held the TLT since late October. I have recommended TLT call option positions to Edge Pro subscribers.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/3-defensive-etfs-vxx-gld-tlt/.

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