Using Regression to the Mean to Profit in the Short Term

This market as been particularly frustrating since it is showing no conviction in a particular direction.   We are truly at an inflection point.   However, I still think there is opportunity since I believe in the phenomenon of regression to the mean.

Here are two opportunities I am considering:

• Buying foreign currency ETFs.   The dollar is at or near multi-year highs versus the Euro and the Yen.  This isn't sustainable in the long term.  Over time, the dollar get cheaper versus foreign currencies.
• Buying stocks in out of favor sectors.    Retail, utilities, consumer staples, biotechs and REITs are out of favor sectors at this time.   Several retail stocks are at or near 52 week lows.   Many REITs are closer to the 52 week low than the 52 week high, and pay 4-7% dividends.  If the economy improves, these stocks will do better also.

For both cases, I have selected some ETFs and stocks into which I will slowly trickle funds.  That way if I'm early, I will still be able to buy some at lower price.  If my timing is right, I will have a small position, but it will be profitable.

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This is not financial advice. Please consult a professional advisor.

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