I think its time to buy the ProShares Ultra Short Biotech ETF (BIS) from $39-$42, and apply a trailing 6% sell stop. This trade is designed to preserve the portfolio’s overall value or to decrease the potential losses that may develop in individual stocks if the market hits a 5-10% correction from current levels. The health care sector may be vulnerable along with the general market over the short term.  That means that in order to protect our long term holdings it’s time to hedge our bets.  BIS rises and falls at twice the rate of the Nasdaq Biotech Index (NBI) and is a volatile fund.  However, it is an excellent way to protect a portfolio of health care stocks when there is any doubt about a potential change in the rising trend.

Why are we so concerned?  For one thing, the overall stock market, as measured by the S & P 500 (SPX) has reached the top of its yearlong trading range near the 2100-2140 area and is starting to show signs of weakness.  Second, NBI has also run into an area where it has struggled in the past six months, its 200 day moving average.  In other words, as the summer heats up and the political season reaches new levels of uncertainty, some traders may decide that it’s time to sell and hit the beach. 

If we’re wrong and the market does not correct, the 6% trailing stop will get us out of the position.

Disclosure: I own shares in BIS.