You heard correctly. My Stock of the Week is not a stock.

In fact, it is a truly unique inverse ETF that strongly outperforms most other inverse ETFs. And now is a great time to consider having a position like this on hand in case the upcoming round of China trade talks are a bust with the market tumbling once again. (More on that later).

The inverse ETF I am pounding the table on today is the AdvisorShares Ranger Equity Bear ETF (HDGE). The proof of its power was on full display Tuesday when the S&P tumbled -1.23%. Given that result there is no surprise that the popular inverse S&P 500 ETF (SH) was up a nearly equal amount. However, HDGE rallied an impressive +1.98%.

No…HDGE is not a leveraged ETF. Rather it is constructed to short the weakest stocks that are most likely to be sold in droves when the market falters.

Think about it this way. When the market falls we often hear the term “Flight to Safety”. That means investors run towards the safest investments like cash, Treasuries and defensive stocks like utilities, healthcare and consumer staple.

The flipside of that coin is that investors actively run away from less safe stocks. That group includes small caps, growth stocks and pretty much any economically sensitive industry (energy, industrials etc). And within that group, HDGE focuses on the fundamentally weakest of the stocks that are ripe for outsized declines.

Now back to the bigger issue…why should folks consider an inverse ETF at this time?

Let’s rewind to the last time that the US and China were set to have a high level trade negotiation. That was in late July.

All seemed right with the world with stocks making new record highs above 3,000. Then a few nasty Tweets and headlines later it was clear the deal was not going to be made and the market tumbled 7% in just a few short painful sessions.

Yes, the same exact thing could happen with this upcoming round of talks starting October 10^th. And just like insurance in the real world, you need it in place before the disaster…not afterwards.

To be 100% clear, I am not saying that I expect the deal to falter. There are increasing odds that both sides are ready to make a deal and with that stocks will be pressing to new record highs over 3,100.

However, there are still a few reasons that a deal might not be ready to be signed and we could find ourselves back at the August low of 2822 or lower in a hurry. That is especially true after today’s ominous reading of 47.8 for ISM Manufacturing (a 10 year low)

That bad set of economic data can be overlooked as long as a deal comes together. If both sides push away again, then the odds of recession increase pointing to ample downside for stocks.

Again, you want to have your downside insurance plan in place before the events…not after. Thus, I recommend that each investor consider adding an inverse ETF like HDGE at this time in case the worst case scenario does play out.

By The Way…

HDGE is just one of two inverse ETFs that I have in the Reitmeister Total Return portfolio. These downside insurance policies help balance off the long stock exposure I have with 7 growth/value stocks and 3 conservative income stocks.

The sum total of the portfolio is only 70% long the stock market right now. From this more conservative posture I can easily get more bullish or bearish depending on how the trade talks unfold.

Now is a great time to start a 30 day trial to the Reitmeister Total Return portfolio given these events occurring in the month ahead:

• 10/10 US – China Trade talks begin
• Q3 Earnings Season
• Fed Announcement on 10/30…this one is a bigger question mark than the last two with greater market moving possibilities.

Start your 30 day trial now to see the current portfolio of stocks and inverse ETFs I have constructed for this unique market environment. Then get all the market updates and trade alerts as the rest of the October events unfold.

30 Day Trial to Reitmeister Total Return portfolio.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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