Stocks were besieged once again on Thursday, pushing the Dow Jones Industrial Average down to test its 200-day moving average amid a cavalcade of geopolitical unrest.
NATO officials continue to warn of the invasion rise of a growing Russian force on the Ukrainian border while Moscow hit back against the West’s economic sanctions by banning certain imported food and agricultural goods. In Iraq, Isis keeps making gains as chatter grows the U.S. military could soon be utilized for airstrikes against the Sunni extremist group.
Adding to the pressure was a lack of new action by the European Central Bank despite evidence of a growth slowdown in the eurozone.
The evidence is growing that the current market pullback could be the start of something more serious. JPMorgan analysts have noted an “exodus” from bond ETFs in recent days, as folks respond to the main driver of the current bout of nervousness: that the Federal Reserve, mindful of the turnaround in U.S. economic data, is moving closer to raising interest rates.
Amid the turmoil and volatility, investors are looking for safe havens to protect the gains earned over the last two years. Here’s a look at three options that are making money right now.
Long-Term Treasury Bonds (TLT)
Click to Enlarge To the great exasperation of many on Wall Street that have been calling for a decline in long-dated U.S. Treasury bonds, they’ve been rallying powerfully since early July as folks have sought out safe haven assets amid the tumult.
On Thursday, the iShares 20+ Year Treasury Bond ETF (TLT) jumped above its July high, pushing down yields. In fact, as shown above, 10-year Treasury yields have dropped to 2.43% — a level that hasn’t been seen since June 2013 amid the rise in rates associated with the “taper tantrum” surrounding the Fed’s preparation to end its QE3 bond-buying.
Precious Metals (GLD)
Click to Enlarge After rolling over throughout July, gold is on the move again this week on a combination of nagging inflation fears and geopolitical concerns. The SPDR Gold Shares (GLD) exchange-traded fund popped back above its 20-day moving average for the first time since mid-June, potentially ushering in another upside extension.
A return to mid-March levels would be worth a 6%-plus move from here.
Playing the Short Game (GE Puts, RUSS, EEV)
Click to Enlarge Sometimes, you’re not interested in playing defensive. Or you subscribe to the flipped adage that the best defense is a good offense.
Whatever the motivation, the truth is that the market’s newfound choppiness is creating profit opportunities on the short side for nimble traders.
Key areas of the market including industrial stocks like General Electric (GE) have been on the slide, as shown above. That has pushed up the value of the Sep $27 put option contracts I recommended to Edge Pro clients back in early July by nearly 120%. Russian stocks have been weak as well, pushing up the inverse leveraged Direxion Daily Russia Bear 3X Shares ETF (RUSS) more than 14% since I recommended it to my Edge Letter clients on July 24.
The next area that looks soft is emerging-market stocks, which have been storming higher in an unbroken uptrend since February. But now, a loss of the 50-day moving average by the iShares MSCI Emerging Markets (EEM) suggests new short side opportunities are in play here such as the ProShares UltraShort MSCI Emerging Markets (EEV), which I’ve recommended to clients.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm. As of this writing, he had recommended GE puts, RUSS and EEV to his clients.