Investors should not become complacent because of the recent market rally that has provided temporary respite from the carnage of the previous months. This rally is based on very little positive news in terms of the economy and its prospects going forward.
The key indicators to look for going forward are the unemployment rate and or an implosion of large hedge funds. If either or both of these things occur, the bull will be exposed for what it is, a dead cat bounce. Remember, the housing crisis is not yet over nor is the banking crisis.
With this in mind, investors should continue to look at taking positions in contrarian, or inverse, funds and lie in wait to profit from downward forces that exist but are being overrun by traders and hedge funds looking to make a buck. As Jim Cramer suggests in a recent interview, this is not a market for investors to profit from but one for traders, and professional traders at that.
Cramer: When We'll See Dow 10,000
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There is no growth in the U.S. and the contraction in third-quarter GDP confirms this -- so going long this market at this time is strictly for a trader's bet.
Going short, however, gives investors a chance to profit from the likely fall in the market and collect on the downside until such time as the market shows true signs of bottoming. Let's give a rough estimate of, say, August 2009 when this bottoming could happen. This also coincides with Jim Cramer's view of the housing market bottoming around July 2009. At the bottom, or near enough, then the market will be an investors' market to buy and hold and not so much a traders' world.
In the meantime, why not profit from inverse funds. Here are the top 20 inverse stock mutual funds for month of October.
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Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.
In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
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