On Friday, I told you I was taking a short position in the Russell 2000 Growth ETF (IWO).
For those that may not know, the IWO is a growth-focused exchange-traded fund (ETF) that represents the two areas seeing the most underperformance right now…
Small-cap stocks and growth stocks.
I then added IWO to my Watchlist last week as a short idea, as growth stocks had come under some pretty heavy selling pressure the couple weeks before.
Many hedge funds had started selling the tech sector heavier than they had in more than 10 years.
And along with the persistent underperformance of small-cap stocks found in the Russell 2000, this made me believe we had a strong candidate for a short trade.
Coming back to today’s markets, I can honestly say that trading conditions are some of the worst I’ve ever seen.
As expected, small-caps and growth stocks are getting hit the worst, so IWO made a good candidate to bet against.
Here’s how it looks on a weekly chart…
My Next Move…
Yesterday morning, I was up about 5% on the trade – a decent win betting against an entire index.
But instead of taking the profit, I decided to press it.
I often do this when I’m short the market, or betting against the market’s success.
In all honesty, I really don’t want to make money on the trade.
I would much rather stocks cooperate and push higher since there is a lot more money to be made on the long side.
But if IWO is truly going to melt down, I want a lot of exposure when it does.
So Now What?
Wednesday morning, I dug the hole a bit deeper and added to my position by selling short more shares of IWO.
But (and this is the important part), I also brought my stop level down.
Take a look…
As you can see above, instead of taking the profits now, I am using them to finance my trade. In other words… I’m “letting it roll.”
Now, could IWO bounce from here and stop me out? Absolutely.
And if it does, I will walk away with a tiny gain since my stop is now just below my average entry price.
On the other hand, IWO could continue to fall, and a small win could turn into a big win leading to some pretty nice profits!
Either way, I’ve worked to protect myself… I have “financed” my risk and can no longer lose money on this trade.
And, in this field, protecting your funds is the goal…
So that’s just what I’ve done… Protected my capital and put myself in a win/win position.
Yes, in the end, I may take a small gain instead of a big one, but it will still be a gain.
Honestly, you can’t ask for a better insurance plan than that.
Embrace the surge,
Editor, Stock Surge Daily