How to profit from the coming market decline.

Several times in the last couple weeks I’ve highlighted the potential for the market to rollover soon. Yesterday it started, today it confirmed its bearish intentions.

While two or three days down doesn’t mean we’re back in a bear market, there are some very important price levels that will tell you if this sell off could get serious, or if today was a head fake.

Plus, this simple ETF trade can enable you to profit on the way down.

The media will likely make a big deal about the fact that the S&P 500 and the NASDAQ are now back under their 200-day moving averages.

I don’t usually say this, but the media is right.

However, the S&P 500 (SPY) is, for all intents and purposes just sitting on its 200-day moving average area. It hasn’t completely broken down.

This means that the key price levels to watch for further declines are today’s lows. If the market continues lower and breaks today’s lows then there is a good chance that the skittish bulls will drive the market lower with fearful selling.

However, if the market trades over today’s highs then today’s dip under the 200-day moving average could be the bottom of what could become an important pull back to buy.

Here’s how to play it if you are an active trader.

If the SPY and QQQ break today’s low. Then the VXXB, which is the ETF for the Volatility Index, will likely shoot higher. The VXXB tends to go up when the market goes down, and it can do so violently.

For example, If the SPY sells off to its 50-day moving average, it’s likely that the VXXB will go from its current price of around 33 to 40. That’s a nice pop.

The VXXB, however, is not something you buy and hold. It’s good for catching a big pop when the market starts to sell off, but if the market rallies, it should be exited. In this case, I would not hold it if it breaks its 10-day moving average.

So right now the stop on the trade would be under 31.25.

In summary, if the SPY and QQQ trade below their low’s tomorrow then the trade is to buy the VXXB on a breakout over 33.70 with a stop under 31.25.

Look to start taking profits at 37, and definitely at 40.

Trade smart,

Rick Nartarian, Chief Investment Officer
The American Investor Daily