3 Things to Remember when Trading the Government Shutdown

As we all wait for Congress to get back to work, there are some things to keep in mind about playing the market swings. 

• Never put your money in when there is crisis (unless you found out about it before any one else)
• If you think you found out about the crisis before anyone else, chances are you haven't
• It may be a good idea to buy the dips on solid stocks that have good balance sheets and good management

I wrote a post a while back about shorting the market when it is high.  These situations are perfect examples of why shorting the market is always the most profitable trade.  There will always be an unforeseen crisis that will bring the market down and when the market goes down it goes down fast.  There is nothing that happens consistently that brings the market up fast.  The market will always go up slow and down fast.

The key is to find stocks that are overvalued and their balance sheet and management may be going through some difficulties.  At the slightest sign of market weakness these stocks will drop fast.  Conversely stocks that are strong internally will weather these dips and it is a good long term play to buy the dips on these stronger stocks.  Do your homework before jumping in and I always prefer dividend paying stocks for long term plays because it takes the edge off any potential losses and may even prevent any losses. 

Stocks that may have problems because of the shutdown are those that depend on government contracts like defense, food service, research, transportation, medical, education.  Stocks that may be insulated from the shutdown are those that don't have contracts like clothing retailers, luxury brands, entertainment, etc.

Do your homework and set your stops.  Happy trading!