Get Ready for the Next VIX Wind-up

Even though the major indexes were soaring today, with the S&P 500 up 1.08% and the Dow up 1.19%, volatility could be around the corner with the VIX showing higher lowers on the monthly chart.



Buying XIV or SVXY right after the VIX has spiked can yield nice returns, as long as you are not borrowing money to make the trade.  It's wise to only allocate 10-15% of your portfolio to riskier trades like this.

Setting the Bar for VIX Trades

Looking at 2016, for most of the year, when the VIX spiked above 15, it was back down below that bar very quickly.  The month of June was an exception.

Timing inverse VIX investments
(XIV and SVXY)
Keep an alert active in your stock market tracker to let you know when the VIX goes over 15, especially if you are not watching the market every day.  Chances are you can make a nice gain within a week or two if you purchase an VIX inverse.  The best gains are made when the VIX goes over 20, because it rarely stays above that level for a week (barring economic crisis environments or extreme fear).

This is the last one year cycle for XIV (inverse VIX  fund).  There were about 6 opportunities to make large gains (so far in 2016) in a short period of time:
February 10-11
June 14-16
June 24-28
Sept 13-20
Oct 13-17
Nov 2-4

XIV appreciation over five years.

Unlike VIX funds, XIV actually appreciates over time (because of the decay of VIX futures), so if you don't buy in an extreme peak, you could probably cash out within a few months.

Winters seem to be a time of opportunity to buy XIV when it tumbles.

Jan 31-Feb 5, 2014
Dec 10-16, 2014
Dec 31-Feb 11 (2014-2015)

Dec 10-11, 2015
Jan 4-21, 2016




Timing VIX funds 
(TVIX, UVXY, VXX, VIXY)
This is a much harder strategy because these funds cannot be held for long term gains. Never go long on VIX funds.  They are not based on the current VIX level, but rather VIX futures.  It's best to buy TVIX or UVXY when the VIX is below 13 and then sell at the very first spike after the purchase.

Holding any VIX fund for any time period greater than a few weeks is usually not wise, because the VIX funds experience exponential decay over time.

The Market is Soaring in March 2016, But Stay Cautious of a Slump Ahead

It seems that suddenly the market headlines are no longer talking about the potential downside that could happen when stocks soar too quickly.

MarketWatch had a great article on 3/17/16 about the how the next financial crisis could be caused by Energy Companies defaulting like dominoes:
Energy sector defaults could go like dominoes - MarketWatch

The domino effect of one mutual fund - MarketWatch
"Markets roll over and die because the financial system finally tires of the evil twins: leverage and poor liquidity. That is what investors should be on the lookout for into 2016. Seven years into a bull market that eventually sprung from that financial agony, the signs are there again that investors will not be able to get away with investing in just anything."

When could the next market drop happen?

Look for the next market drop when the DOW approaches or breaches 18,000.

The 52-week high for the DOW is 18,351.40.
The peak in November 2015 was 17,977.The recent steep climb from Feb 11, 2016 to early March 2016 is about the same slope as the rapid rally from October to the first week of November 2015.

The 52-week high for the the S&P 500 is: 2,134.72



More articles about potential market downside in 2016:

I Still Fear A Big Market Decline Ahead | Kiplinger

5 — and only 5 — things that pose a greater global risk than a Donald Trump presidency - MarketWatch

First Order Submitted with RobinHood app

Tonight before bed I placed my first stock order with RobinHood. 

Markets are closed (it's 2am MST) and the app did NOT give me an option to buy during extended hours. 

I put in a Limit Buy order for UWTI at $1.45 per share. (China's market has dropped gain so hopefully oil continues dropping.)

The Last Day's closing price was $1.65 and in the premarket it's down to $1.58. I think with fluctuations in the morning it will dip below $1.50 and hopefully I can get it at $1.45 "or better". 

Since RobinHood does not charge per trade fees (commissions) I could have put half of my planned purchase at one price and waited for the other half to watch it during the day for the potential to keep my average price as low as possible. 

I could have also split my UWTI investment into two Limit Buy orders at different prices to protect myself from a significant price plunge. 

Winners and Losers from 1/27/16

DOW closed down 1.38% to 15,944.
NASDAQ fell 2.18% to 4,468.

TVIX
The day's range was 8.73 to 10.12.  It broke the $9.40 barrier at about 2:40pm EST.  It hit $10 at about 3:15pm.

I bought in $8.92 at 12:03pm EST and then got out at $9.65 with a saved sell order around 3pm EST because I was at my day job and could not monitor the market, otherwise I would have watched the indicators and possibly sold at $9.80.  I didn't want to miss a peak in case it was below $9.80.  I was anticipating that if the market fell hard it would max out around $10.

UWTI
Although oil and the overall market have been inseparable for the last several trading days, oil was up slightly and the market fall on bad reactions to the FED announcement and disappointing earnings from various companies.
Range: 1.86 - 2.30
Up 6% to $2.11

NUGT
As the market started bleeding in the last few trading days, gold has seen renewed interested after a huge dip on
Range: 23.25 - 25.90
+5.2% to $25.83

PAAS (Pan American Silver)
Range: 6.32 - 6.70
+4.4% to $6.64
For an entire week this silver mining company has been on an uphill slope.  If it falls back between 5.60 and 6.00, this would be a good entry point for a day trade or a swing trade.

PAAS may not have hit a bottom yet!

SUNE
Up 9.1% to $3.33
Even though the stock was on a downward slope most of the day, it still made a big jump.  Activist investor David Einhorn's hedge fund Greenlight capital recently upped their stake in Sun Edison to 6.8%.

CENX (Century Aluminum)
Up 4.89% to $3.65
The 5 day chart shows a lot of volatility.  Buy if this drops below $3.30 again, keeping in mind that it hit $2.80 on January 12th, which is 15% less than $3.30.

SQQQ
Shorting the Nasdaq was very profitable today if you bought shares of SQQQ on 1/26/16 or jumped in between 12pm-2pm EST.  The best exit was between 2:45pm and 4:10pm.
Range: 23.21 - 25.12

Today's Losers

AAPL (Apple)
-6.57%
$93.42
Apple has been very volatile over the past few months.

NFLX (Netflix)
-6.83%
$91.15
Has been on a downward slope since November 6th, with the biggest drop occuring today, January 27th and a previous big drop on January 20th.  Below $100 this seems like a decent buy-in and below $95, it's probably a bargain.
Market cap is currently $38.96 billion.

TQQQ
-7.4%
Range: 80.20 to 87.41

BA (Boeing)
-8.93%
$116.58
Follwing a weak 2016 forecast.


SVXY
1 Week chart shows some interesting opportunities.  In the next 3 trading days, we might see a bounce if there is any good news on the street.

X (US Steel Corp)
-14%
$6.67 close
52 week low is $6.43, within 4% of today's prices.
Market cap is $975 million

X one month chart

X 6 month chart.  Has the free fall stopped yet?

Stock Market Plummet Will Arrive By May 2016

Looking at the trend lines for the 2002 and 2008 stock market drops, the last time both occurred the red line (Daily Moving Average) crossed the green line (Exponential Moving Average).  If the trend lines continue, they will cross again in the first 6 months of 2016.   This is one of the reasons we'll see the stock market plummet by May 2016.  Slow global growth and market turmoil in China will also contribute to the upcoming market correction/recession.

The Simple Moving Average and the Exponential Moving Average lines are about to converge again!

Do a google search for 2016 recession and you'll find that there are plenty of economists warning of upcoming stock market drop in 2016.

The Fed Balance compared to the S&P 500.  Even in 2014 is was predicted that 2016 would see another financial crisis. [Image from financialsense.com]

News articles about the forecasted stock market tank in 2016:

Sell everything ahead of stock market crash, say RBS economists - The Guardian

Junk Bonds Signal 44% Recession Risk in 2016 - Bloomberg

Could the Economy Tank in 2016? - 23 economic forecasts for the new year.

Is 2016 the Year of the Next Recession? - Fortune

David Levy Forecasts a Global Recession in 2016

Stocks to Buy If You Think the Market is About to Crash

Amid all the news of a potentially huge market downtown, there are some stocks that could reap big gains if the market does tank.

UVXY
A triple leveraged VIX tracker.  When the DOW goes down 1% or more, this stock usually soars.
Be aware that since UVXY invests in futures, there are higher taxes on this fund.  You are also not buying shares in any company when you purchase UVXY.  Best to buy this under $30 so you don't lose your shirt!  What day traders are saying about UVXY on StockTwits.

TVIX
"The investment seeks to replicate, net of expenses, the returns of twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures index". 

NUGT
Sometimes when the market goes down, investors get worried and jump into gold as a "safe haven".  This stock price is determined by both the day's price of gold and the performance of gold miners. Read more about recent prices and strategy for buying into NUGT. It spiked on Jan 7, 2016 when the DOW fell about 400 points from 16,906 to 16,514.

A telltale sign that a huge market hit could be on the way...
The chart below shows a broad time history for the Dow Jones, from 1985 to present.  Look what happened in 2007 when the market grew too fast.  Based on this 6-year cycle of crashes, we could see a crash sometime in 2016.

My prediction for 2016: the DOW will fall to 15,000 to 15,250.

Patterns in the last 22 years of the DOW show that we could be in for a big market tank in 2016.

The DOW over the last 10 years.  The red line is a simple moving average and the blue line is an exponential moving average.  The last two times that that they crossed, the market fell!  What we are seeing now looks like 2008.

The DOW, 1995 to early January 2016.  Expect a big market corrections before 2017.

Articles about warning signs in the market:

RBS Warns: Sell Everything - MoneyBeat - WSJ

Dana Lyons' Tumblr — Complacent Correction Cause For Concern?

10 Stats to Put the Stock Sell-Off in Perspective - MoneyBeat - WSJ

Market Correction Could Become a Full-On Bear - Barron's

The Great Benefit of a Falling Stock Market - Barron's

Opinion from Stock Tweets about the current market:

@bellajolie Technicals are there, signs are there, we are in a bear market. Have been for a month.
— James Kim (@jameskim1980) Jan. 14 at 10:32 PM

Gold Stocks May Be Good During Market Volatility

One of my favorite short-term trading stocks (a month or less), NUGT tracks the performance of gold miners.  It's a triple leverged ETF, meaning that it's designed to have 300% of the performance of the Arca Gold Miner's Index.

On 1/13/16 NUGT was a buy below $23. I bought in at $22.84.
(The 52 week low is $21.70)  By the end of trading hours it was back up to $23.30.
Ideal sell price is $27.00 or higher, but with more shares I would be out at $25.15 (10% gain).

Previously I have bought in at $24.47 average on 12/31/15 and sold at $26.43 on 1/4/16.
That's an 8% gain before trading fees.

NUGT is usually a buy below $25, because it peaked at $30 twice in the last three months and could have been sold at $26 or $27 several times.
Dec 4, 2015
Jan 7, 2016

If you think Gold is on the downtrend, you can invest instead in DUST, it does the opposite of NUGT, performing well when gold miners are doing poorly.

Other Gold investing options:
GDX
GLD
GFI
UGLD

$NUGT with the way the world markets have been acting this year this guy's going to high 30s/low 40s maybe more just have to be able to wait

— Mark Rumin (@saltwatertrader) Jan. 13 at 03:54 PM