Chris Lau - Seeking Alpha

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Tuesday, July 15, 2008

How to Make Money from a Falling Market

North American markets are currently in free-fall. This is being lead by the financial sector. As such, bear funds that trade inversely to the direction of the stock markets are doing well. HXD, a bear ETF I recommended on July 2, is currently $19.50, fairly close to my $19.90 target. If reached, that would mark a 9.5% return in just under two weeks.

The next logical question is to assess whether the TSX has further to fall. If it does, I think that HXD.TO will reach $23.50.

There continues to be tremendous pressures on financial stocks due to the Fannie and Freddie problems in the U.S.  Declining bank shares will add to negative pressure on the TSX index. Conversely, energy prices refuse to fall significantly, so the TSX might not fall as rapidly as the DJIA or S&P500. Why are energy prices not falling as I predicted from a technical analysis point of view?

Growth in Europe, China, and India all remain strong, and US consumers have not really cut back on personal spending. It remains to be seen whether OIH will reach my target. When trading patterns change, I will re-visit this sector.

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