NEW YORK (
) -- There are several considerations that can lead to putting an idea on this list of winter's contrarian ideas, but the two most attractive characteristics are potential for a sudden price move in one direction or high volatility. As a result, this is a list of trading ideas, rather than investing for a significant period of time.
The trading portfolio follows specific strategies to limit losses, usually with trailing stop loss orders. Although it hasn't been done in any of the portfolios to date, options may also be used for risk management. Updates are published at two-week intervals.
Idea No. 1: Buy Brazil
The vehicle used here is
iShares MSCI Brazil Index
. There has been a pullback of 8% since early December, so we are buying against the short-term trend. We will try to buy EWZ with a $73 limit buy order and place a trailing 5% stop loss order when purchased.
Idea No. 2: Buy China
The exchange-traded fund hat represents stocks traded on the Shanghai stock market is
iShares FTSE/Xinhua China 25 Index
. The ETF has declined more than 10% from mid-November, so this is another trade against the short-term trend.
We will buy at the market and place a 5% trailing stop loss order. If stopped out, we will immediately buy
ProShares UltraShort FTSE/Xinhua China 25 Index
and limit risk with a 10% trailing stop loss order.
Idea No. 3: Buy Gold
The five-month chart for
SPDR Gold Shares
shows eight occasions in the past five months when the relative strength indicator, or RSI, has reached or fallen below the level of 50.
A buy on GLD placed at the market close on the first day of each upturn would have been profitable, using a 5% trailing stop loss order for risk management. The only stop loss execution during this time span occurred at $113.58 on Dec. 4. The gain from the first entry point on July 13 would have been 25.8%, and 17% from the last entry point at $97.05 on Sept. 28.
The dip on Dec. 14 hasn't yet proven to be a good entry since price and RSI turned down again. If a position had been entered at market close on Dec. 14, the potential would exist for a loss of 3.6% using the same trailing 5% stop loss order.
The entry point for GLD will be the first day the RSI turns up. If, once opened, the position is closed with the execution of a 5% trailing stop loss order, an order will be placed immediately to buy
ProShares UltraShort Gold
at the market. For GLL, a trailing 10% stop will be used. The position will be reversed back to GLD if GLL is sold.
Idea No. 4: Buy Silver
Silver will be bought using
iShares Silver Trust
using the gold signal and sold when GLD is sold. This position also will be reversed into GLL, following the same sequence of trades as outlined for GLD, but using SLV instead of GLD.
Idea No. 5: Sell Oil
Oil has traded in a fairly narrow range for the past two months. The chart for
Proshares UltraShort Oil and Gas
reflects this. The RSI graph and the Moving Average Convergence/Divergence concur with the support line in the triangle pattern; all are rising, reflective of a downward tendency in the price of oil. We will buy DUG at the market and use a trailing $1 stop loss.
If stopped out, we will immediately purchase
ProShares Ultra Oil and Gas
A 10% trailing stop loss order will be maintained if DIG is purchased.
Idea No. 6: Sell U.S. Treasuries
As with the DUG chart,
UltraShort 20+ Year Treasury ProShares
also shows an ascending flag pattern with supporting MACD and RSI charts.
We will try to buy TBT with a $47 limit buy order. A 6% trailing stop loss order will be placed on the position. If stopped out, we will immediately buy
iShares Barclays 20+ Year Treasury Bond
and place 4% trailing stop loss order.
Idea No. 7: Sell the S&P 500
We will buy
ProShares UltraShort S&P 500
at the market and place a 5% trailing stop loss order. If stopped out, we will immediately buy
ProShares Ultra S&P 500
and place a trailing 5% stop loss order.
Idea No. 8: Buy the Nasdaq-100
In the summer contrarian portfolio, we maintained a paired position short the
with SDS and long the
ProShares Ultra QQQ
. That position could have been much more profitable if we had managed the two ETFs independently.
In this winter portfolio, we will do that and buy QLD at the market, with a 5% trailing stop loss order. If stopped out, we will immediately buy
ProShares UltraShort QQQ
and place a trailing 5% stop loss order.
The first review of this portfolio will be published on Jan. 5.
Disclaimer: These portfolios are not intended to be used as investment advice. Suitability of any investments discussed is an individual determination and professional advice should be sought. The author intends that his process for selecting and monitoring these portfolios may serve to illustrate methods of investing and controlling risk that might be instructive but may not be suitable in specific detail for many individuals.
-- Written by John Lounsbury in Clayton, N.C.
The author may trade any of the positions mentioned at any time and may do so in a manner that doesn't follow the published portfolio strategies.
John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.
Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,