That’s the only way you can describe yesterday’s action in the overall stock market. Not only was it the worst single day for stocks in 2019 (Nasdaq -3.4%, Dow -2.9%, and the S&P 500 -2.98%), but the market’s fear index, the VIX, shot up to its highest level since January 3.
Now if you don’t know how the VIX works, it’s simple. When investors and traders become fearful and uncertainty fills the air… that’s when you see the VIX spike… and that’s what it’s been doing over the last five days.
Let’s face it… there were very few places traders could hide without getting whacked yesterday…As nearly every sector in the entire market was down.
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But even with that said, I made some money on some longs. And no, I didn’t wait for the bottom to get long, this was a position I put on Friday and took off Monday morning for a profit.
And that’s the thing… penny stocks don’t correlate with the overall market. And despite yesterday’s massive sell-off in stocks… you still could have banked, even going long, like I did, in DGCD.
The bulls got slaughtered yesterday… as major market indices fell by more than 2.5%. I avoided that entire mess and actually locked in $1,102 on a stock I was long heading into yesterday… just from trading penny stocks… doing the same thing I do day in, day out.
With so much blood on the streets, I thought it would be a good idea to talk about penny stocks as a new flight to safety due to the profit potential they offer, as well as the lack of correlation they have to the market.
What I mean by that is it’s not uncommon to see multiple penny stocks up 10%+ on any given day… even if the markets are volatile. You see, penny stocks do not trade with the market whatsoever.
For example, even with the market down over 3% at one point, there were penny stocks that were up on the day, like Discovery Gold Corp. (DCGD) – a penny stock that I actually bought and took profits in – was up over 20% during the selloff.
And traders are completely ignoring penny stock trading strategies to protect their portfolio… rather, they’re looking to gold exchange-traded funds (ETFs) and bond ETFs to hedge against a drop in the market.
The whole idea here is to use a strategy that protects your portfolio from a potential market crash. Sure, gold is inversely correlated to the market – that means when the market sells off, gold tends to run higher.
However, gold ETFs – like GLD – do not offer a perfect hedge.
Well, the market could drop more percentage points than gold gains.
For example, let’s say you used GLD to hedge your portfolio and allocated the same amount of capital to as you did for your stock portfolio.
Well, you would’ve still lost money on the day.
You see, GLD only finished the day higher by around 1.50%.
On the other hand, the market was down over 3% at one point… with no signs of rebounding.
So basically, GLD didn’t serve as such a great hedge after all.
Again, the whole idea here is that you want your hedging strategies to make more than your normal strategies when there is blood on the streets… so you’ll still be profitable in a down market.
That’s where penny stocks come into play.
Since penny stocks don’t move with the overall market, it could be a great hedge. For example, if the market gaps down and sells off like it did yesterday… you don’t have to worry because it’s unlikely that the penny stocks will follow suit.
Basically, penny stock traders are solely focused on price action and catalyst in the companies themselves, and anything the market is doing doesn’t really affect them at all.
Here’s what I’m referring to.
I don’t buy and hold large-cap stocks (these stocks move with the market), but if I did… my strategy would serve as a hedge.
First, I’m trading penny stocks, and as you already know… they don’t care what the market is doing.
Second, my strategy consistently produces 10 – 20% winners… and that means even if the market crashed and you’re long… chances are the gains from my strategy would outweigh the losses from the overall market.
For example, on Friday when the market sold off… I was actually buying a penny stock based on one of my best setups.
While traders were panicking because of a potential gap down on Monday (which it did), I wasn’t afraid of being long over the weekend (I call it the Weekend Wiretap strategy)… because I knew that even if the market moved, my trade idea could still make money.
Here’s exactly what I was watching in Discovery Gold Corp. (DCGD).
In the chart above, you’ll notice my Staircase to Profits pattern. This is one of my favorite setups because it has a high probability of success. Typically, what I do is I’ll buy the stock in the afternoon… and the very next trading day, I take profits.
That’s exactly what happened with DCGD, I bought shares on Friday and took profits yesterday.
That was a 15.38% winner for me.
As you can see, if you add a penny stock trading strategy… it can be very lucrative and protect your portfolio against a downturn.
Tomorrow, I’m going to show you exactly why penny stocks are better than just trading large-cap stocks and how to find potential trades, as I go LIVE tomorrow from 2 PM to 4 PM EST.
However, this will just be a one-day-only event and I’m going to cap the attendance, so not everyone will be able to see me in action. Don’t miss out on this exclusive event… it’s only available to my Penny Pro newsletter subscribers. Shoot me an email at Jeff@pennypro.com to see how to can gain access to this live event.