On March 6th 2009 the Dow Industrial Average (DJIA) bottomed out at 6,469.95. As we write this commentary, the Dow has risen to 7,960, an increase of 23% in just 40 days. Of course, compared to the 52 week high of 13,136.69, the Dow is still down about 40%. So the question is: Has the Dow peaked?

Looking at the attached chart, we can see that market has been in a defined downward trend. The technical analyst in all of us would then look to see if there is any evidence that the downward trend has been broken, in this case there clearly is no break, yet. The market currently sits atop a bear rally that has been losing momentum the past few days. Then again, we here at INVESTIZMO central are not big fans of technical analysis, so don’t forget your proverbial grain of salt.

Fundamentally, things aren’t that much better. Deflation, poor earnings, and overall lack of consumer confidence doesn’t usually equate to a strong equity market.

Question: So what can be done?

Answer: Hedge!

Besides selling all your stock to crystalize the past 40 days of gains, investors can look to alternative strategies to soften the blow if the market does a quick u-turn and tanks all over again.

DXD

The ticker DXD is a leveraged 2-for-1 inverse hedge against the Dow 30.  In plain English: for every 1 percent decrease in value of the Dow, DXD will increase by 2 percent. Of course if the opposite happens, you stand to lose a lot very quickly. The theory is that if the Dow rockets up, you’ll be happy taking a big loss DXD because the rest of your portfolio will be singing. DXD trades like a stock and is very easy to purchase.

PUTS

For the more advanced investor, now might be a good time to purchase a put option on your favorite index linked product, or even the index itself. A put option can give you many times more leverage with a fixed risk profile.

It should be an interesting few weeks to watch the Dow.