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An ETF Pairs Trade to Play This Market Sell-Off

by | Sep 13, 2021 | Options, Stocks

This past week ended with a surprise sell-off on Friday, catching investors off guard after the stock market opened higher that morning. This past week, I also went public about a new ETF pairs trade I have going on — which I’ll go into more detail further down this article. 

But, guys, it’s been months since the last time I’ve seen such bearish action on the overall market. 

For the stock market to open higher than the previous day’s highs, and then close at weekly lows, that’s a sign of market distribution — i.e. widespread stock selling. 

I’ll be watching closely early this week to see how solid the rallies are and if they fade into late afternoon selling… and you should be, too.

If this pattern continues, we’re in for a doozy this week. 

Not to mention that Friday, Sept. 17, is the day options expire, so I always expect some fireworks around that. The S&P 500 quarterly rebalance also happens on this day, which I have a great trading strategy for!

Make sure to be on the lookout for that later this week.

But for now, keep reading below for which ETFs investors should use for their next pairs trade.

Investors’ Next ETF Pairs Trade and Other Data to Watch This Week

As you guys know, I’ve been correctly fading Cathie Wood, CEO and CIO of Ark Invest, for awhile. 

I have a pairs trade for my  Money Link strategy going on right now with her ARK Innovation ETF (NYSEArca: ARKK), and I’m shorting this fund. 

When I look at ARKK, I see a chart that looks like it’s going to test the May 2021 low of $100 soon… And that tells me the money is flowing straight into the iShares Russell 2000 ETF (NYSEArca: IWM).

Traders, I think you know where I’m going here — go short on ARKK and long on IWM. 

I’m also watching some key economic data that’s coming out this week. 

Last week, we saw  the Producer Price Index come in at a record 8.8% year over year! So inflation is starting to feel like it’s not so transitory… The Fed has been saying for months now that it has a firm expectation that inflation will cool down.

And what a surprise, it looks like what the Fed has been saying is wrong.

Now it looks like inflation is accelerating, and this week’s Consumer Price Index — coming out on Tuesday — could be one of the most important data points we get this month. 

We’re looking for a 0.4% month-over-month increase, and a 5.3% year-over-year increase.

I expect the data to come in hot and much higher than forecasts say, more like 0.6% or 0.7% month over month, and more than 5.5% year over year. 

I’m watching the bond market, as always, for clues as to what’s going to come next with rising inflation. A move above 1.4% on the 10-Year Treasury yield means that stocks could get smacked down on Tuesday…

If you have any questions or comments about my Money Link ETF pairs trade, then make sure to send them to jeff@joyofthetrade.com

As always, stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel.

WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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