Stock Market Trading Range

Most of the gains for the stock market have already been made this year. It will probably be a see-saw battle between the bulls and the bears from April through the November election. Bad news will surface from time to time that will send the market down. Then, through continual inflows from 401K funds, the bulls will eventually restore order again for a while since the money will need to go somewhere.

In this type of environment, a trader can always make money based on whether or not there is volatility in the stock market. If the market is calm, then XIV, an inverse volatility fund can be bought at around $10, and it could be sold at $12 or $13. The profit will need to be taken quickly because it will not last.

Then, for the downside of stocks, TVIX, a leveraged volatility fund could be bought. You could buy it at $8 or lower and sell it when it gets to $9.50 or higher. Then, hang onto the cash until the stock market pulls back again several weeks later. In this way, you can most likely make double or triple digit returns over the rest of the year based on whether the market is acting like a bull or a bear.

Market Correction Is Here

After an unbelievable stock market run over the last several months, it looks like stocks will finally see some downside for a change. The depth of the downturn will probably depend on whether the economy will show more improvements. Selling has already started ahead of May this year because the stock market has experienced such a long uptrend. TVIX, the leveraged volatility exchange traded fund, will probably be profitable for a while as we move into the summer. Be certain to take profits when you are ahead, though.

Several market indicators point to a downturn in addition to the normal summer pullback. One of these indicators is the New York Stock Exchange summation index. The chart has been going down since February while the Dow 30 kept making new highs. This wide divergence between large caps and all other stocks could not last forever. The strong stocks can carry everybody else for a while, but eventually the large caps go down also. It looked like the Dow 30 finally started going down this past week. The million dollar question is how far the stock market will fall. Stay tuned and be careful about owning stocks for the next few months.

Bull or Bear

The current stock market trend matters tremendously when you are trying to decide what stocks are worth owning and what stocks should be sold. Long term bull markets will have plenty of bear rallies with the reverse being true in bear markets where short-term bull rallies will occur. Since the middle of December, we have seen primarily a bull market trend. Bears have been gored. One recent example of this has been TVIX, the double volatility ETF. This stock never dropped below $16 per share in all of 2011 and was higher than $100 per share in the first part of October 2011. This all changed starting in December to the present. TVIX was in a free fall during the past three months. If you were expecting the former $16 bottom low to hold, you would have lost money for a while when TVIX dropped below $14.

As of the week ending February 24, TVIX was hanging around the $16 to $17 range with increasing volatility. The volume has been rising since TVIX formed a bowl bottom in the $14 range. The stock has also crossed the $20 mark two times recently. This is a case where you can probably make a small amount of money on TVIX during a bear rally within the greater bull market trend.

How do I know we are are in a bull market primary trend? The best place to look for support on this idea is the St. Louis Federal Reserve website where you will see charts of improving employment statistics along with low inflation and other good economic news. Two good stocks to own in the 2012 bull run are Clean Energy (CLNE) and Westport (WPRT). They are both involved in using plentiful natural gas for transportation purposes. Clean Energy is building natural gas fueling stations coast to coast and north to south. Westport is building natural gas engines for large 18-wheeler trucks, fleet trucks, and passenger trucks. After the nation-wide infrastructure is built, manufacturers will also be building natural gas cars. This revolution could possibly become as powerful as the computer and internet explosion of the 1990s!

Stock Market Timing

The holy grail of making money in the stock market is knowing when to buy and sell. I have recently discovered a couple of charting techniques that could come close to solving this mystery. I will also give some stock examples and charts to illustrate this. After you sell the stocks according to this timing scheme, it will be imperative to keep the trading money in cash until the next buying signal. This is to protect profits. If you can make 20 to 30% a few times each year from this plan, you will eventually see the value of sitting in cash sometimes.

If you want to know whether we are in a bull or bear trend, just look at a chart of the S&P 100 percent of stocks above the 50 day moving average. If the successful stocks total line is above the 50 day line, then it will be safe to own stocks. You could sell whenever you are up 20% or whenever the S&P 100 bullish chart falls below the 50 day average. One specific stock that you could own to go along with this plan would be SSO, the leveraged S&P 500 ETF.

Another chart plan for buying and selling involves the slow stochastic signal line and the MACD signal line. Pick a popular stock like AGQ, which is leveraged to the price of silver. Whenever the slow stochastic signal line crosses over at the bottom, you should buy AGQ. Then, whenever the MACD signal line crosses downward from the top, you should sell. Buying with the slow stochastic signal will get you in the trade at the best time, and holding on for the MACD downward crossing before selling will smooth out false signals that appear on the upper slow stochastic signal line.

Sell Silver Stocks

With the Dow getting close to 12,800 we are at an intermediate stock market top, and institutions will soon be taking profits. The European debt situation will also jump to the news headlines in the next two months, and this will send the stock market down again. Another factor in selling silver stocks now is the chart of silver futures at Barchart.com on the futures performance page.

I am planning to sell the leveraged silver ETF, AGQ, on Monday morning. I will be banking a profit of around 17% for being in the stock for less than two weeks. If you can make 17% every two weeks, you could be rich in a short amount of time. Unfortunately, it is not that easy. You are not always able to buy low, and everyone also makes losing trades sometimes.

I believe the long term trend for silver is up, but it will go down whenever the general stock market declines. I plan to buy AGQ again when it drops to $46 per share.

Going back to the futures chart at Barchart.com, this is a great website to monitor whether you should be in or out of commodities or VIX (volatility) stocks. Silver is still positive in the charts, but it has dropped some. It needs to be sold while it is still positive. If you will notice VIX at the bottom of the futures chart page, it has gotten less negative just since Friday. This is the time to buy TVIX, a volatility ETN which tries to leverage whatever VIX is doing on CBOE. I believe that volatility will be rising again soon, and TVIX will be a winner probably during the next month or longer.

Buy Cheniere Energy

You could have made almost 100% in capital gains if you had bought Cheniere Energy (ticker symbol CQP) a year ago. On top of that, you would have made 8% in dividend payments. I am one of the people who has owned Cheniere in the past, but I did not hold on this past year to reap the big monetary gain.

Conditions at Cheniere changed tremendously in the fall of 2011. They picked up three big contracts worth billions of dollars. They can easily stay in business and do great now. I am buying the company again the next time the stock market opens. The company price may not immediately rise higher, but you will be paid over 8% to wait. I also think that Cheniere could double in price in the next two to three years. This will be a lot more than you can make in a stock market that is only drifting slowly higher.

The Great Crash Ahead

Harry S. Dent has written a fascinating book on the economy and the stock market entitled The Great Crash Ahead. The book contains numerous charts and tables to explain why the stock market is heading down in the years ahead. The era of easy money is over, and society will never go that way again.

The stimulus plans have failed. On page 239 of the book, the author suggests that the Dow could fall to 5600 by 2014. This is a bitter pill to swallow, but it is more realistic than you might initially think. The baby boomers are retiring, and they will not be putting additional money on the line in a dubious stock market. They will also be selling their investments and using the cash for their retirements. In addition to individual cash-outs, the U.S. government will have plenty of financial problems along with the European nations. These factors will lead to many down days in the stock market. The best way to play this scenario is to buy a volatility index like TVIX for around $15 and sell it at $22. This pattern will also be repeatable for years to come.