Commodities

Alternative Assets to Watch as Stocks Sputter

By Adam O'Dell  |  June 6, 2019

Everyone is focused on the “FAANG” stocks this week, and rightfully so. News of a potential government crackdown on big tech’s choke hold is a big deal.

But obsessive FAANG-watchers aren’t likely seeing the three concerning signals that alternative markets are sending this week.

What Are Your Alternatives?

There are only four broad assets classes in the entire investment world:

  1. Stocks
  2. Bonds
  3. Commodities
  4. Currencies
  5. (Volatility?)

People love stocks. Especially when stock prices are moving higher, which they often do. But sometimes stock prices fall. For good reasons and bad — and some unknown. And that scares us!

Occasionally, we’ll become so concerned about the trajectory of stock prices that we’ll consider selling our stocks and, instead, look to buy something else.

That “something else” can be one of only three things:

  1. Bonds
  2. Commodities
  3. Currencies
  4. (Volatility?)

Not only are alternative asset classes typically less volatile than stocks — except for commodities. They tend to “zig” when stocks “zag.”

These are broad generalizations, of course. And I’m sure we could find counterexamples — of a high-yield bond that’s more volatile than a utilities stock, or of a specific commodity that has a high correlation to a miner’s stock.

But in general, alternative assets offer just that: an alternative to stocks. And a select few of these alternative assets have over time earned a special status. These assets have become known as…

“Safe Haven” Assets

First, U.S. Treasury bonds have long been considered a “safe haven.”

This flight-to-safety trade can be triggered by any number of specific catalysts, though they all share the same general feature: concern about the trajectory of stocks.

 My Cycle 9 readers made a bullish play on a Treasury bond ETF last December as stocks were tumbling. That netted us a nice 86% profit in a matter of weeks!

I also have my 7-Figure Trader subscribers in a long bond play that’s paying off nicely.

But I think there’s even more upside in bonds this year… particularly if stocks continue to weaken.

My Cycle 9 Alert system generated a series of three consecutive, profitable trades on IEF during the last top. There were buy signals in August 2007, two months before the top. Buy signals in January 2008, two months after the top. And one more in September 2008, just ahead of Lehman’s collapse.

If the current market at least follows suite with history, our recent buy signal on Treasury bonds may prove to be the first in a series of successful ones — the second one could be coming soon. And, if stocks really begin to deteriorate into a crisis scenario, we could see a third bond rally as fear reaches a climax.

All told, I’m continuing to monitor the Treasury bond market, which appears to be heating up as concerns over stocks grows.

Japanese Yen

 The Japanese yen has also earned safe-haven status.

And when you see how shares of the Invesco CurrencyShares Japanese Yen ETF (NYSE: FXY) gained 31% in 2008 you’ll understand why. That’s a huge move for a major developed economy’s currency!

Its been a long while since anyone’s been much interested in the yen. But that could be a good thing if pent-up demand continues to build in anticipation of trouble ahead.

Shares of FXY have traded in a narrow sideways range since the beginning of 2017. But now, increased fears about the trajectory of stocks have investors bidding up FXY to the top of its range. And if a bullish breakout unfolds, it has plenty of upside room to run higher.

Gold

 Everyone’s given up on gold in recent years, but renewed concerns over the trajectory of stocks, and perhaps the eventual consequences of loose monetary policy, may work to renew this safe-haven metal’s luster.

Shares of the SPDR Gold Trust (NYSE: GLD) peaked in 2011-2012 and then pulled back roughly 50%. They’ve been building a sideways base of support in the $110 to $130 range for an incredible seven years now!

Gold’s latest rally sent shares of GLD up 15% between August 2018 and February 2019. A bull-flag pullback then unfolded as the advance took a breather. And now, we’ve seen GLD leap strongly higher over the last week.

All told, it may be a bit too early to jump into gold… but I’m watching closely as this is the third safe-haven asset that’s now firmly on my radar.

Volatility?

 Yes, I kept referencing four major asset classes and then “volatility” as a potential fifth.

 Volatility has gained a lot of attention in the last decade — not as a concept, but as a tradeable asset class.

Is it an asset class completely distinct from the other four? Should it even qualify as an asset class? These are questions currently being debated by academics and practitioners alike. And we’ll leave that to them.

One thing is certain: volatility tends to “zig” when stocks “zag.” And that makes it yet another potential safe-haven, flight-to-safety play to consider.

My 10X Profits system is not currently triggering a long volatility trade, but I’ll certainly keeping a close eye on volatility as the summer wears on.

 

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Adam O'Dell

As Chief Investment Strategist for Dent Research, Adam O’Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with minimum risk. He achieves this with his perfect blend of technical and fundamental analysis.

Tactically, he does extensive back-testing and probability-based research. It’s the ultimate partner to the exhaustive research that Dent Research co-founders Harry Dent and Rodney Johnson do in the exciting realm of the new science of investing.

Adam is also the executive editor of our hugely successful trading services, Seven-Figure Trader, Cycle 9 Alert and 10X Profits.

He has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high-profit potential.

Aiming to find the best opportunities across all asset classes, Adam expanded into the commodities, equities and futures markets. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. MORE FROM AUTHOR