2012 Stock Market Strategy

This past year was very disappointing in the stock market. Historically, it should have been a good year because it was the third year of the presidential cycle when the stock market usually does well. However, the debt problems here in the U.S. and Europe got to the point where they could no longer be ignored. 2012 will be another treacherous year in which the stock market will go up sometimes, and it will pull back at other times. Since we still have the debt problems, there will be many down days where an investor could make a profit by shorting the stock market or by going long with a volatility index.

In this context, the bulls will also be exerting force in the new year because people are always adding money to their 401K plans in one way or another. Money does not sit idle. Those who have it will be seeking to make more money from investing although it will be a mistake on their part because the gains will be small, and profits must be taken quickly. Since this is an election year, the Republicans will add more fuel to the bull fire since it will be perceived that they can do a better job than the Democrats.

The net result in all of this is another volatile year in the stock market where the spread between the highs and lows will be large. TVIX, the double volatility index ETF, is the best way to play the 2012 scenario. If you can buy TVIX for less than $16 per share, there will probably be several times in the coming months when you will be able to make a profit of 10% of more on stock market down days when volatility will spike. Be certain to take profits when you are up, though, because the bulls will always come up with a story of some kind to keep the stock market alive.

ATP Oil and Gas

ATPG has a lot of oil and gas in the Gulf of Mexico that they will be able to monetize sometime in the future. This company is probably worth $20 or better. If we have trouble getting oil from the Middle East due to Iran, ATP Oil and Gas may be catapulted in price by 200% sooner rather than later.

The company has been trading in a range near $6 to slightly over $7. You could accumulate the stock whenever it drops near $6, and if you want to trade it out at $7.15, you would make 16% on your money during each cycle. It might be worth holding onto a core amount of stock for whenever it moves toward $20 per share, though.

Investing Strategy

We are living in a dangerous investing world due to several factors. We have the financial problems of Europe as well as the U.S., we have high unemployment, and we have a bad housing market. Certainly we have seen some improvement recently in these situations, but we have a long way to go before a bull market in stocks can be declared.

Essentially, we are in a bear market, and the only way to succeed is through short term trades. Also, since sometimes the bottom is not clear on certain stocks, it is a good idea to enter trades with multiple buys rather than going all in when the stock could drop further. A classic example of this is GMCR, Green Mountain Coffee Roasters. It looked like the stock had formed a bottom in the first part of November 2011 when the price looked stable in the mid $60 range. They had already fallen around 40% from their annual high of over $100. However, when they narrowly missed earnings, the stock price fell off a cliff all the way down to $42 per share. If you had bought all your shares at $67, you would have experienced a devastating 37% loss in a day's time. If you had only bought $1000 worth of GMCR at $67, you could have bought the rest of your shares after it dropped to $42, and when the stock went back to $56 by December 2, you would have made a substantial profit instead of a big loss.

If you have a moderate portfolio of $50,000 and you limit your buys to $1000 initially, you will only be risking 2% of your portfolio until you see how the stock is going to perform. This small trade amount will also allow for significant diversification to add more safety. Then, if you can make $200 on most of the $1000 trades, those 20% gains throughout the year will probably amount to doubling your portfolio money each year!

Post Thanksgiving Stock Market

Europe's financial demise in 2011 came to a pinnacle in the fall when Greece and Italy were both forced to appoint new government leaders. As of Thanksgiving, there was no sign of any quick solution, and the stock market was down for the week due to weak German bond sales. There is no way to tell how far stocks will fall in the week after Thanksgiving. The pullback may be done.

I sold my position in TVIX, the double volatility index, on Friday for $62 and change. I made a small profit since I got in at around $53. My reason for leaving the trade now is that TVIX has struggled over the past month when it has gone over $60 per share several times. My guess is that the Europeans will find another band-aid to patch up their financial problems. This will result in a possible Santa Claus rally in stocks, but the advance will be small since the European situation is not yet fully resolved.

On the long side, I bought shares of ERX, the triple oil ETF, on Friday for around $37. It is possible that the stock could go lower, but I believe it will return to more than $50 per share in just a few weeks or less. I plan to sell my shares at the limit price of $51. This is based on the fact that ERX has gone over $50 per share several times in the past month.

Two other long stocks that I plan to buy on Monday are PEIX, Pacific Ethanol, and RIO, Rio Tinto. Pacific Ethanol has doubled in the past month, and insiders have been buying the stock. Rio Tinto is one of the world's largest miners, and they have a single digit PE. They will eventually be worth twice the current $46 per share.

Miracle Cures

Jean Carper has written a fascinating book called Miracle Cures. The book discusses more than a dozen cures through over-the-counter supplements. For example, a lady who had a weak heart that could barely pump blood was saved by taking 300 milligrams of Coenzyme Q10 per day. COQ10 improves heart pumping as well as overall body energy.

Another healing supplement is selenium. A 1996 study showed that taking 200 milligrams per day for seven years reduced the occurrence of cancer in a group of 1300 people. Selenium had the greatest influence against prostate cancer. It also reduced colon and rectum cancer by more than 60 percent.

Arthritis was another condition the author talked about. One lady thought she would need a hip replaced, and she chose natural supplements instead. She took chondroiton, glucosamine, and manganese for two years, and she was able to play tennis again. She could also walk five or six miles without pain.

Bear Market Signs

Several fundamental economic indicators would point to a stock market heading toward bear territory or at least a situation where stocks will not gain very much at all.

1. High unemployment.

2. The Fed interest rates are already around zero and the economy is slow.

3. Housing starts and sales are not going anywhere.

4. A deadlocked Congress where money is not being spent to create jobs.

5. Shortfalls in IRS collections caused by a lot of people who are not working.

6. Foreign bad news because the world is now a global economy.

7. The summer and fall seasons are especially susceptible to market drops.

If you see any or all of the above signs, it might be a good idea to sit on the sidelines until conditions improve. Another possibility is to buy bond funds like JNK and RCS which pay around 8% or better annually, and you get a portion of the dividend each month.

Arthritis Cure

The Arthritis Cure by Jason Theodosakis, MD, is a great book for finding out what you can do for an arthritis problem. Studies have shown that glucosamine and chondroiton are two of the best supplements for rebuilding cartilage and for arthritis relief. Unfortunately, not all supplements are high quality.

The author tells which companies make the best supplements. He also tells the approximate dose size to take for beneficial effects. For example, you need to take 800 to 1200 milligrams of chondroiton each day. This supplement is also the best one for helping you, but it is even better if you take it with glucosamine, too. I highly recommend this book for everyone.

Buying Stocks

The worst time to buy stocks is at a stock market top. This is not the case in October of 2011. During the first week of October, the S&P 500 actually slid into official bear market territory briefly. Then, a big rally took place for three days. Whether the market has really turned around or not, you can probably eventually make money through buying stocks now. We cannot predict the exact bottom or top of the market, but buying near the bottom is worthwhile.

If you want to play it safe, you can buy an ETF stock rather than individual companies. For example, ERX is a triple energy stock ETF that basically goes up 3% for every 1% rise in oil. The fund owns several large oil companies. If you believe that oil will eventually rise, this is the stock for you. 100% gains can be made also if you buy it near the true bottom.