I think the market is at a real risk of breakdown, although maybe just a short-term panic-selling. Two major risks out there as I'm writing:
- The US job numbers were quite bleak, much worse than what was expected. The market has priced in a rather healthy recovery of the job market and GDP and this surprise hit many bullish guys' never quite hard.
- Three elections/votes are ongoing in EU, which are potentially very detrimental to Euro: it appears the French President Sarkozy has already been kicked out by Hollande. The Greek government may also be replaced by those who is likely campaigning for an early exit from the Euro zone. What happens in Italy may also be negative to Euro.
While the market has defied the gravity for many months now to refuse going down, it would still be wise to have some protection in case this is the time that the market wakes up to face the reality. One way to do so is to buy the volatility ETF, VXX. Of course be mindful of the potential K-1 form, which is something I'm not sure about. The safe bet would be to buy its call options. If the market indeed plunges, VXX will shot up explosively. SDS has the similar effect but specific to betting a bearish trend of S&P500 at a 2 times leverage.
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