A popular axiom among long-only investors is to “buy low sell high.”

For those investors who are equally interested in making money from both markets going up and markets going down, the parallel axiom is, “short-sell high and buy-to-cover low.”

In the short-term, the stock market is overbought, and it is common for overbought markets to become more overbought. If this market moves up from here, many opportunities on the short-side will be ripe for the long-term investors who want to position themselves to make extraordinary returns when the market goes down the next time.

We diversify among over 50 short-selling strategies in different time frames. We also build positions slowly.

The new idea is to sell short large-cap pharmaceuticals.

Large-cap pharmaceuticals

In our opinion, the best way to short large-cap pharmaceuticals is to use the Market Vectors Pharmaceutical ETF PPH. PPH has 26 holdings, including Johnson & Johnson JNJ, Pfizer PFE and Merck MRK among others.

This trade is a combination of three strategies.

Change makes conventional wisdom wrong

Large-cap pharmaceutical stocks are in favor these days. The market participants perceive them as safe. The reasoning goes that people will always be using drugs irrespective of what happens in Europe, China or to the U.S. economy.

Further, there is historical evidence that at this point in the cycle large-cap pharmaceuticals do well.

This time the conventional wisdom is likely to be proven wrong. Astute investors need to get ahead of the crowd before the crowd recognizes the reality of the upcoming election in the U.S.

If President Obama wins, large-cap pharma will come under pressure….Read more at MarketWatch

 

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