The ASX 200 is getting smashed, here’s how to protect yourself (and maybe even profit from it)

LiveWire

20 Dec 2024

Darn that Jerome Powell! Social media tells me he’s responsible for all my portfolio’s woes this week! Not exactly. Despite social media’s innate ability to deliver quality news and opinion, this ...

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Social media tells me he’s responsible for all my portfolio’s woes this week!\nNot exactly. Despite social media’s innate ability to deliver quality news and opinion, this ...</p>\n<a href=\"https://www.livewiremarkets.com/wires/the-asx-200-is-getting-smashed-here-s-how-to-protect-yourself-and-maybe-even-profit-from-it\">Source Link</a>\n</div>\n</body></html>","source":"livewire_stock","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta content=\"text/html; charset=utf-8\" http-equiv=\"Content-Type\"/>\n<meta content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\" name=\"viewport\"/>\n<meta content=\"telephone=no,email=no,address=no\" name=\"format-detection\"/>\n<title>The ASX 200 is getting smashed, here’s how to protect yourself (and maybe even profit from it)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe ASX 200 is getting smashed, here’s how to protect yourself (and maybe even profit from it)\n</h2>\n<h4 class=\"meta\">\n\n\n2024-12-20 18:02 GMT+8   <a href=\"https://www.livewiremarkets.com/wires/the-asx-200-is-getting-smashed-here-s-how-to-protect-yourself-and-maybe-even-profit-from-it\"><strong>LiveWire</strong></a>\n</h4>\n</header>\n<article>\n<div>\n<p>Darn that Jerome Powell! Social media tells me he’s responsible for all my portfolio’s woes this week!\nNot exactly. Despite social media’s innate ability to deliver quality news and opinion, this ...</p>\n<a href=\"https://www.livewiremarkets.com/wires/the-asx-200-is-getting-smashed-here-s-how-to-protect-yourself-and-maybe-even-profit-from-it\">Source Link</a>\n</div>\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"RHC.AU","symbol_name":"RAMSAY HEALTH CARE LTD","start_time":0,"source_url":"https://www.livewiremarkets.com/wires/the-asx-200-is-getting-smashed-here-s-how-to-protect-yourself-and-maybe-even-profit-from-it","article_id":"2492349232","we_media_id":null,"thumbnails":[],"rights":{"source":"livewire_stock","url":"https://www.livewiremarkets.com/wires/the-asx-200-is-getting-smashed-here-s-how-to-protect-yourself-and-maybe-even-profit-from-it","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2492349232","pubTimestamp":1734688949,"columns":[],"sourceInfo":{"source_id":"livewire_stock","name":"Livewire Markets"},"weMediaInfo":null,"summary":"Social media tells me he’s responsible for all my portfolio’s woes this week!Not exactly. Despite social media’s innate ability to deliver quality news and opinion, this really couldn’t be further from the truth. JP is just doing his job. Considering the US economy didn’t fall off a cliff after a global pandemic, and his Federal Reserve pretty much nailed the post-pandemic inflation threat – I’d say he deserves some sort of medal (President Trump?If there is some fault to apportion for your portfolio’s terrible performance this week, I’d be looking at the market analysts who had inaccurate expectations of the current macroeconomic environment, and the Fed’s likely response to it – that’s ultimately why prices have corrected so sharply this week.You can’t. 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Despite social media’s innate ability to deliver quality news and opinion, this really couldn’t be further from the truth. JP is just doing his job. Considering the US economy didn’t fall off a cliff after a global pandemic, and his Federal Reserve pretty much nailed the post-pandemic inflation threat – I’d say he deserves some sort of medal (President Trump? 🤔).\nIf there is some fault to apportion for your portfolio’s terrible performance this week, I’d be looking at the market analysts who had inaccurate expectations of the current macroeconomic environment, and the Fed’s likely response to it – that’s ultimately why prices have corrected so sharply this week.\nAs of roughly 6am Thursday morning local time, those same market analysts collectively had to change two cells in their giant, fancy stock valuation spreadsheets titled “Cash Rate 2025” and “Cash Rate 2026”. Both cells got a +0.50 applied to them. That’s how much the Fed ratcheted up its own forecasts for their cash rate at the end of the next two calendar years.\nThe upshot is that higher interest rates equate to lower stock prices because:\nA higher cash rate impacts the rate at which analysts discount the future earnings of stocks. A higher discount rate flows through to lower stock values – immediately stocks prices appear overvalued post-adjustment compared to pre-adjustment.\nHigher interest rates, more generally, reduce company profits as it increases their costs of funding, but also as it also reduces consumption – it can also hurt company revenues. Lower company profits equal lower stock prices.\nHigher interest rates increase the risk-free return on alternative asset classes like bonds. Investing in risky stocks (yes, as you’ve been reminded this week – stocks are risky) is increasingly less attractive the higher the returns on risk-free bonds climb.\nThe long and short of it\nWell, that’s what happened. Here’s what you might want to do about it. Get short.\nShort selling allows investors to profit from a fall in an asset’s price. It provides investors with an invaluable strategy to ride out market volatility, and potentially even profit from it.\nIf you’re not proficient in short selling, this is the article for you. Firstly, consider the typical investment goes like this: Buy first, sell later. We do this because we believe the price of an asset is about to appreciate. If it does, you’ll make a profit. If it doesn’t, you’ll lose.\nShort selling just puts the buying and selling components the other way around. We short sell when we think the price of an asset is about to depreciate. No doubt, at some time, I’m sure you’ve been confident a stock is about to fall. This is exactly when you’d want to get short.\nWhen we short, we sell first and buy later. How can I sell a stock first, I hear you thinking: I don’t own any?\nYou can’t. If you did, this would be called “naked” short selling and it’s against the law! To legally short sell, you must first borrow the stock from someone who already owns the shares.\nThis process is handled seamlessly behind the scenes by your broker. First, you’ll need to set up a “stock borrowing facility”. Generally, this is not something discount brokers do – but you can check. Many short sellers use derivatives like options and contracts for difference (CFDs) to go short – but I will leave the investigation of these instruments to you.\nThe bottom line is, when you type 100 shares into the quantity box on your broking ticket, the next thing you want to do is hit the “SELL” button. Your broker’s trading system instantly checks to see if you own any of the stock in question, and if you don’t – it automatically knows you’re intending to short sell.\nAfter you’ve hit the sell button, you’re short. There, you did it!\nWhat happens now? Not much, really. The price of the stock changes as it would if you didn’t go short, just like any other investment. Also, just like any other investment, it’s now up to you when to get out.\nIdeally, this occurs after the price of the stock has fallen. Remember, we want the price of the stock to go down when we short – if it goes up, we’re going to lose.\nAt some stage you’ll need to hit the “BUY” button for the full number of shares you’ve traded to “close out”, or “cover” your short. Then, as with any trade, the difference between your initial and final transaction price (less transaction and holding costs) equals your profit.\nIt works like this:\nLet’s say we thought all of those short sellers in Pilbara Minerals (ASX: PLS) weren’t crazy, but they had just done really great research and realised the stock wasn’t a bargain – rather that it was grossly overvalued.\n\nOn 4 March 2024, we decided to short PLS shares at $4.50.\nWe go to our broking platform, enter 100 shares in the quantity box, and hit the SELL button.\nOur broker sees we don’t already own any PLS shares and opens a SHORT trade for 100 PLS shares on our behalf.\n\n\n\n\n\n\n\n\n\n\nPilbara Minerals (PLS) price chart\nToday PLS is trading at $2.10. That’ll do, we tell ourselves. We go to our broking platform, dial up a PLS order ticket, and enter 100 shares in the quantity box. Then we hit the BUY button – TRADE CLOSED.\nAs all the shorted PLS shares are covered back, we have no further obligation. Our profit is (100 x $4.50) – (100 x $2.10) = $240.\nExtrapolate this out to however many shares of PLS you’d usually trade, and you can see that short selling literally doubles your investing opportunity. Well, not quite – not all ASX stocks are short sellable. There’s a list on the ASX website, and yes, as you know – PLS is on it – and it’s been one of the most consistently shorted ASX stocks throughout 2024.\nMind the squeeze…\nPlenty has been said about “evil and unscrupulous” short sellers depressing the share prices of otherwise quality ASX companies. I’m not going to debate the “quality” of the companies that short sellers choose to target, but I suggest that like any professional investor – short sellers do careful due diligence as to which companies’ stock prices are most likely to fall.\nIf you don’t agree with them, well:\n\nThat’s what makes a market – buyers and sellers with different opinions – at some point the share prices proves either party correct; and\nShort sellers run the risk of losing when the price rises, just as you run the risk of losing when it falls.\n\nNote in our case study for example, if the price of PLS went up to $10, we would have had to pay $1,000 to repurchase the shorted PLS shares, and the result would have been a $550 loss.\nAlso consider, because there’s theoretically no limit on how high PLS shares may go, there’s theoretically no limit to the potential loss. The prospect of potentially unlimited losses on a short trade is a key reason why short squeezes occur. A short squeeze is when investors scramble in a panic to close their shorts, driving the price of the stock in question through the roof (Um, wasn’t there supposed to be a short squeeze in PLS this year? 🤔).\nIf you can’t beat ‘em, join ‘em\nOk, now you know about short selling. This is the good bit – where you can find a bunch of stocks that might be suitable to short. It’s called ChartWatch ASX Scans. In ChartWatch ASX Scans, I publish two lists each day – one of my favourite uptrends and one of my favourite downtrends.\nAs a trend follower (i.e., I can only buy stocks in uptrends and sell, avoid, or short sell stocks in downtrends), I suggest you keep an eye on the Downtrends lists for potential short selling opportunities.\nThis year there have been plenty of them. It’s one of the few years I can remember where different segments of the ASX so spectacularly moved in the opposite direction. There were dozens of fantastic uptrends in Technology, Consumer Discretionary, Financials, and at times, in Real Estate Stocks.\nSimilarly, there were just as fantastic downtrends in dozens of Resources and Energy stocks. It was a veritable smorgasbord of trading opportunity in 2024.\nLet’s look at some of the best downtrends of 2024 as identified in ChartWatch ASX Scans Downtrends lists. I will focus on those selected as “Feature” charts, i.e., those for which I had the highest conviction. Note, that ChartWatch ASX Scans only effectively began on 1 June, so the data below relates only to the period since then.\nThis is perhaps the most important takeaway from this entire article:\nEven if you didn't use the ChartWatch ASX Scans Downtrends lists to go short, if you only used them to figure out which stocks to avoid or which stocks to consider cutting from your portfolio – you could have avoided potentially dozens of 2024 investing disasters!\n\n\n\n\n\n\n\n\n\nChartWatch ASX Scans - 2024 Feature Downtrends Top 30. Changes are correct as at close 19 December (click here for full size image)\n\nNote that our case study stock, PLS, appeared as a Feature downtrend 20 times in ChartWatch ASX Scans Downtrends since 1-June, from a close of $3.11on the 24-June candle to a close of $2.19 on the most recently Featured 16-December candle.\nBut it was far from the most Featured downtrend of 2024. That dubious honour goes to Ramsay Health Care (ASX: RHC) with an impressive (or depressing if you happen to own the stock) 32 Feature chart appearances.\nA picture tells a thousand words, and in my opinion, so too does a stock chart. So, perhaps the best way to illustrate how the Downtrends lists could have been used to help identify potential short selling opportunities is to see how a few of the top performers played out this year.\nIn each of the following case study short videos, I’ve spliced together each Feature chart for some of my favourite 2024 downtrends. So, for RHC for example, there are 32 charts spliced together, each 1 second apart, building a rolling record of how the RHC trend played out this year as viewed by ChartWatch ASX Scans.\n\nFeature Downtrend Case Study 1: Ramsay Health Care (RHC)\n\n\n\nThe most Featured Downtrend of 2024 is Ramsay Health Care – Not an honour you really want from a stock in your portfolio!\n\nFeature Downtrend Case Study 2: IGO (ASX: IGO)\n\n\n\n\nThe second most Featured Downtrend of 2024 is IGO – It really didn't give the shorts much trouble this year, but neither did many of its lithium counterparts...\n\nFeature Downtrend Case Study 3: Patriot Battery Metals Inc. (ASX: PMT)\n\n\n\n\nThe third most Featured Downtrend of 2024 is Patriot Battery Metals – Another big lithium loser. Interestingly, it was well supported throughout the year by the big brokers (see here - it still is!).\n\nFeature Downtrend Case Study 4: Boss Energy (ASX: BOE)\n\n\n\n\nThe fifth most Featured Downtrend of 2024 is Boss Energy – Uranium stocks were flying until mid-year, and that's when my trend following model picked up on several developing downtrends within the sector. I am particularly proud of just how precise my model was in picking up the transition from long term uptrend to long term downtrend here.\n\nFeature Downtrend Case Study 5: Iluka Resources (ASX: ILU)\n\n\n\n\nThe sixth most Featured Downtrend of 2024 is Iluka Resources – It wasn't just lithium and uranium stocks that suffered this year, many other resources stocks also faltered...and ChartWatch ASX Scans was there to alert investors of the best downtrends in the sector.\n\nFeature Downtrend Case Study 6: Liontown Resources (ASX: LTR)\n\n\n\n\nThe seventh most Featured Downtrend of 2024 is Liontown Resources – A very steady downtrend, with few reasons not to stay the course on the short-side. Again, if you can't beat them, perhaps you should think about joining them?\n\nFeature Downtrend Case Study 7: Megaport (ASX: MP1)\n\n\n\n\n\nThe eighth most Featured Downtrend of 2024 is Megaport – I included this one to demonstrate that even in the strongest sector this year, Information Technology, there were downtrends for investors to avoid, or for savvy traders to take advantage of by shorting!\nConclusion\nI am a trend follower, not a trend prognosticator. I have absolutely no idea where the price of a stock I run as a Feature chart is going to go next. I can’t, because nobody can tell the future.\nBut I’ve learned over many years in the markets that one doesn’t need to tell the future to do well in the markets. Trends exist because of an imbalance between the demand and supply for an asset. That imbalance is usually caused by a very good reason, and by investors who are looking forwards, not backwards.\nI believe this is why trends, whilst only ever representing what has occurred in the past – do have some predictive ability – although, I never expect anything to happen.\nIf the trend continues after I enter a trade, so be it, I hold as long as warranted and I manage my risk carefully.\nIf the trend reverses after I enter a trade, so be it, I hold as long as warranted (this will likely be a substantially shorter time than in the first scenario!) and I manage my risk carefully.\nFor more information about technical analysis and the methodology used in ChartWatch ASX Scans, please see my Technical analysis for beginners: ChartWatch primer.\nI hope I’ve given you a fresh take on how markets work, about the power of following the trend, but most importantly, about how you can use short selling to protect yourself against market volatility – and potentially even profit from it. Happy charting for 2025!\n\n\nThis article first appeared on Market Index on Friday 20 December 2024.\n\n\n\nNever miss an update\n\n    Enjoy this wire? Hit the ‘like’ button to let us know. \n    Stay up to date with my current content by \n    following me below and you’ll be notified every time I post a wire","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1}}}