Interactive Investor

Chart of the week: I’ve found a share worth buying in a crash

9th May 2022 14:11

John Burford from interactive investor

With tech stocks and many market indices falling sharply, technical analyst John Burford names the share he is bullish on. Here’s why.

Last week, the US Federal Reserve (and then the Bank of England) announced that they intend to ramp up the Fed Funds interest rates rapidly and to aggressively unload larger chunks of their assets (bonds) into the open market, starting next month.

Not only that, but it is no secret that consumer price inflation that is running at 40-year highs, and is likely to go higher still, is hugely impacting consumer confidence and buying patterns.

Consumer confidence is sinking like a stone and bullish market sentiment is falling off a cliff.

With such a dire macro environment – that promises little respite – is it any wonder shares are in decline with some in free fall, especially those in the tech sector.

And what a turnaround from the high hopes of last year! Back then, the enthusiasm for most things tech – especially if they were 'disruptive and innovative' – was riding high. But what a difference an historic about-turn by the Fed in November from accommodativeto hawkishhas made.

As a measure of the out-of-love investors are now feeling towards tech, here is the famous (or is that infamous?) ARK Innovation ETF run by Cathie Wood.

Past performance is not a guide to future performance.

This fund contains the shares of many electric vehicle (EV) outfits, which are being battered by investors (and hedge funds). Remember when EVs were the future?

Not any more as the major material constraints many of us proposed earlier are now being recognised more widely. For instance, the price of lithium has skyrocketed so that now a battery's raw material costs now account for 80% of its cost (it was 40% in 2015). 

The race is on to develop new supplies, but they may arrive too late to save the sector as the final vehicle price would put them out of reach of more. Already, an EV costs at least three times the equivalent fossil version.

If the outlook for the economy and shares is really this bleak, what can investors do to protect themselves? Here in the UK, we are far behind the US in offering simple means to protect portfolios against major losses other than to sell holdings into cash. 

While that may be wise in certain circumstances, and buying now much-cheaper bonds with a good yield may pay off, I can offer an idea that would partly hedge your UK-based portfolio.

Here is the Xtrackers S&P 500 Inverse Daily Swap ETF (LSE:XSPS)

Past performance is not a guide to future performance.

This share moves inverse to the S&P 500 index (and most other global indexes). The FTSE should move in a very similar way. When the FTSE 100 declines, this share appreciates.

Note the classic rounded bottom that turned up in January when the S&P 500 topped.

This share is quoted in US dollars and a UK investor would get the benefit of any further dollar appreciation, of course.

I am bullish on this ETF.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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