At the start of July, I shared with you three “alternatives” to traditional stocks.
My indicators were picking up on renewed buying interest in gold, U.S. Treasuries and the Japanese yen — so-called “safe haven assets,” since folks tend to flock to them when stocks stumble
So with stocks near their all-time highs, I suggested it was a good time to consider investing in these three alternative markets.
Now a month later, that’s proven to be a good call!
Global stocks are down between 3% and 8% in the last week alone…
And all three safe-haven markets are up…
Shortly after I wrote about those alternatives — gold, yen, and U.S. Treasury bonds — in The Rich Investor, I also recommended a bullish gold play in my Cycle 9 Alert service. As of today, that particular position is up around 100%.
Below is the original piece I wrote on July 9, 2019, recommending a look towards alternatives moving forward.
And given how volatile stocks continue to be, now is the time to take these seriously…
Three Alternative Markets Now a Buy
The stock market’s been especially volatile since last fall’s sell-off. Up, down… down, up… but with not a lot of net movement in one direction or the other.
The S&P 500 is now trading near its all-time high — just under 3,000. That has some folks, including me, positioning for a bullish breakout.
But the scary thing is… we saw the S&P 500 at this level last October, just before the index’s 20% plunge. And it was at this level at the end of April, too, just before a pretty nasty May.
Timing the ups and downs of the stock market is always a challenge. Though no one says you must look solely to the stock market for returns. With the fate of stocks hanging in the balance, now’s a better time than ever to consider investing in “alternative” assets…
What Are Your Alternatives?
There are only four broad assets classes in the entire investment world:
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 others 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:
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 the iShares 7-10 Year Treasury Bond ETF (NYSE: IEF) late December as stocks were tumbling, netting us a nice 86% profit in a matter of weeks.
That’s a great result from a sleepy bond fund, but I expect there to be more upside in bonds throughout the year… particularly if stocks have difficulty making new highs.
My Cycle 9 Alert system generated a series of three consecutive, profitable trades on IEF during the last top, with buy signals in August 2007 — two months before the top — and in January 2008 — two months after the top — and once more in September 2008, just ahead of Lehman’s collapse.
If the current market at least “rhymes” 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.
We’re trading options in Cycle 9 Alert, so we’ll sometimes make two or more consecutive trades on the same market since each option contract has an expiration date, and sometimes we want to stay in an expiring position longer.
But if you own shares of IEF, rather than a call option on it, than you can simply hold the position for as long as you want. That’s the approach I’ve recommended to my 7-Figure Trader readers.
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!
My Cycle 9 Alert system generated back-to-back winners on the yen in 2008 — the first in January 2008 for 7%, and the second in early October for 9%.
Realize, those returns were netted in just three months and without the use of options. You’ll of course stand to make much more on a well-timed options play on this safe-haven currency ETF.
It’s 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. We’re close to getting a buy signal on this currency ETF in one of my services. And if a bullish breakout unfolds, it has plenty of upside room to run higher.
Don’t make any moves just yet, but realize that the Japanese yen is another safe-haven asset that’s now on my radar.
We can’t forget 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 9% higher throughout May and June.
My system is close to generating a buy signal on gold, but it’s not there quite yet.
GLD gained a massive 60% between January 2007 and March 2008. And my algorithm was able to signal two successful trades throughout the rally — with one entry in December 2006 and another in September 2007.
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.
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 systems are not currently triggering a long-volatility trade. But we’ll certainly keep a close eye on volatility — and potential volatility trades — as the summer slog wears on.