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Stocks

Investing 101: Running Wild on the Short Side

July 29, 2008

By John Lansing, Editor, Trending123

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John Lansing

John Lansing

John Lansing is a longtime professional technical analyst, trader and founder of Trending123. John spends countless hours tracking all of the stock market sectors and sub-sectors to find winning trades for investors like you.

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Don't bemoan your lot in life when the market heads south. The stock market may be emaciated, but we can take advantage of its broader downward trend. How? Short the market and bet on declining stocks.

It's a great investing strategy because shorting a stock that's dropped off its highs can be just as profitable as staking a long position in a stock that's heading up!

I probably don't have to remind you that we are in a period of considerable economic uncertainty. But what does this really mean?

In your over-the-counter variety bear market, investors flock to large-caps when the small- and mid-caps implode. But that's not the case with the current situation–it's the large-caps that are ailing while everything else struggles to keep the market afloat.

Companies like Coca-Cola (KO) and eBay (EBAY)–traditional safe havens for long-term investors–dragged the market down earlier this month on low trading volume that resulted from an unimpressive full-year 2008 outlook.

Even financial behemoths like Citigroup (C) and JP Morgan Chase (JPM) that reported better-than-expected second-quarter earnings lost big-time! We're talking about billions of dollars in write-downs.

So where does this leave us? The uncertainty I referred to earlier can be used to our advantage.

A noticeable trend as of late has been the rotation out of commodities and into other sectors, such as biotech. A way to profit from this shift is to short commodity stocks.

I told my Trending123 subscribers to short fertilizer-giant Potash (POT) a little over two weeks ago, and we've already profited 12.7%! I also told them to short EOG Resources (EOG), an oil and natural gas explorer and producer, and so far we've realized an 8.3% profit!

A Quick Investing 101 Shorting Lesson

Typically, a short sale transaction occurs when a trader sells borrowed shares in anticipation of buying them back later at a reduced price. Essentially, a short seller is betting against a stock. When the trader "covers" the short and returns the borrowed shares to the lender, the trader pockets the difference as profit.

In a market where it seems the only direction for stocks to head is down, shorting is a profitable investing strategy! Yes, it's a bearish stance, but it's a great way to pocket a little bit of extra cash (see also, "Trade Options Without Loosing Your Shirt!").

Here are two great shorts for your consideration:

  • Apache (APA): For all you technical analysis gurus out there, APA broke out of a head and shoulders top a couple of weeks ago, and so far my Trendings123 subscribers have gained 7.4%!
  • United States Steel (X): Recently broke out of a bump and run reversal pattern—and has handed us a 15%!

Not to toot my own horn, but that ain’t bad!

You might think it's strange that I'm offering up these profitable shorts so readily. But I want you to see that even when a lethargic market is stuck in a downward rut, shorting can be a fruitful investing strategy for you. Yes, the risk is high, but if you can keep your emotions checked, the rewards can be great!

When was the last time you turned down $50? Well, you certainly shouldn't start now! Trending123 is giving you a full $50 off your subscription if you sign up today. It's our best offer and it won't last! Now is the perfect time to jump on the options bandwagon and be well on your way to fast profits with John Lansing's trusted guidance and proven track record! Sign up right here for your risk-free trial subscription before it's too late!