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.