Beazer Homes

It has been very frustrating for home-builders in the past couple of years due to the large inventory of available houses. One of the latest reports claims that we have just a six month inventory of houses now. This means it is time to buy home-building stocks like Beazer, BZH.

The company has been trading in a range of between $2 and $2.50 lately. Insider buying took place when the stock was around $2 per share. You may want to follow the insiders on this pattern. Even if you don't want to hold Beazer for the long term, you could make around 25% for your money during each trading cycle between $2 and $2.50 per share. If you do this twice a year, you will be ahead by 50%, and you will be easily beating the general stock market.

No Man's Land

As we move into the month of December for the stock market, we are basically entering a DMZ or no man's land where the upside and downside stocks are about equal. I took profits in the past couple of weeks on ERX, the 3X oil ETF, and TVIX, the double volatility index. After the recent stock market highs, it is not a good time to buy anything.

I have a limit buy order for TVIX at $38, and I will buy ERX again if it drops to $37. Until the European debt crisis and our own Congressional gridlock problems are resolved, I can't recommend any individual company stocks because the fundamentals don't matter anymore in our current world situation. If we were in a true bull market, it would be worthwhile to buy good companies based on fundamentals of year over year growth and other factors. But this is not the case in 2011, and 2012 may not be any better since it will be a major political year. So, the best course of action is to buy leveraged ETFs when they are low, and sell them when you have gained 20% or more. You will be able to repeat this cycle several times during the next year, and you will make a great profit if you are willing to be patient.

Upside versus Downside

Stocks that appear to be on sale may not be worth it. I usually won't buy a stock unless I believe I can make around 100% or more for my money. The downside risk needs to be negligible also. The fundamentals of the stock and the macro view of the world need to be examined before buying a stock regardless of whether the chart looks good or not. It is not worth it to gamble on buying a stock with a possible 20-30% upside versus a downside risk of that same amount.

A recent example of this is GMCR, Green Mountain Coffee Roasters. They sell the Keurig single cup coffee makers, and I love the one that I own. I also enjoy the single cup serving K-cups of coffee that GMCR sells. I believe the company has great products, and they will continue to grow.

However, when it comes to investing, GMCR may not be the best choice. In November of 2011, the stock price had dropped to the mid 60s from a high of over $100 per share. The chart made it appear that GMCR had formed a bottom in the mid 60s, but "the devil was in the details." It still had considerable short interest against it, and when it missed its earnings for the quarter narrowly, the stock sold off in an avalanche and dropped 38% to $42 per share. This was a costly loss of capital for anyone who had just bought the stock in hoping that it would go back to $100 per share. At $42 per share, the stock's PE was still high at 32, and it was a lot higher at $67. At its high around $108, GMCR had a PE of around 80.

So, GMCR had about as much downside risk in the mid 60s as it had upside potential. No one can deny the company's growth, but investing must be done carefully to avoid large losses. Bad things can happen as much or more than good events. Unless the downside risk of a stock of almost nothing, and the upside is fairly certain to be around 100%, it is not worth investing your money.

Fixed Asset Allocation

In today's turbulent market, it is necessary for an investor to have a good plan to prevent a possible large financial loss in stocks. One way to do this is to allocate one third of your portfolio to shorting stocks, one third for long stocks, and one third for dividend stocks or bond ETFs. For example, if you have $9,000 to invest, $3,000 would be allocated to each group.

It will also be important to keep the gains or losses inside each respective group in your portfolio. For example, if you own TVIX, the double volatility index ETF, as a stock for essentially shorting the market, and the initial $3,000 investment gains another $3,000, the $6,000 stays in the shorting group. When TVIX is high, you could sell it and buy it back again whenever it hits a low point. In this way, you could eventually make a million dollars in the shorting group, and it would not matter then if your long stocks and dividend stocks all went to zero.

This plan will protect you from losing all of your money because the stock market cannot destroy a person in all three of these directions if you are buying and selling at reasonable levels. For example, I know a man at work who bought TVIX in the first half of 2011 for somewhere in the $20 range. Then, when the stock market fell apart in August and September of 2011 due to Congress failing on budget issues and due to European financial problems, TVIX went as high as $100 per share. My friend sold TVIX at $68 after his initial money tripled since the price increased over three times. He made around $20,000 profit in just a few months with a modest investment of around $10,000, and he closed his position with $30,000.

This situation will also be highly predictable for years to come. The world will be wrestling with financial problems until the end of time, and money can be made in the stock market simply by being in the right stocks at the right time. For example, if you are patient with TVIX, you can probably make 200% profit per year just like my friend did. The market volatility will only subside intermittently because the world's problems are too great. When TVIX is low, you can buy it with your allotment of shorting funds and sell it when you are up 50% or more. Every few months, this pattern can be repeated.

For example, if you make 200% on your initial investment of $3,000 on TVIX during the first year, you will have $9,000 in this part of your portfolio. In the second year, the $9,000 can be turned into $27,000 on the short side of the market while it does not matter what the rest of your portfolio is doing. You must maintain a separation of your assets because if one group fails, another one will succeed. Then, in the third year of trading TVIX, your $27,000 could make 200% more, and you will have $81,000. When this money is doubled twice in the fourth year, then you will leave the year with $243,000 in your account all made on the short side of the stock market.

So, the way to survive in a dangerous investing world is to divide up your assets and keep them separated from each other. There will always be a temptation to put all of your money on the long side or all short or all on dividends. Just do all three, and you will most likely have overall big gains in the stock market rather than painful losses.

Insider Buying

One of the most certain signs that a particular stock or the stock market will rise is the amount of insider buying. Hundreds of insiders have been buying stock in their companies during the past few weeks. I know we still have negatives with Greece and other European countries as well as our own Congress, but it looks like we may still have a year-end rally for stocks.

One of the best places on the internet to look for insider buying is Filing4.com. They have daily listings of insider buying as well as records going back two weeks. In addition to great information, it is free. They will also send you a daily email Monday through Friday showing the insider buys of each day. You may also discover new worthwhile companies that are not yet on Wall Street's radar. So, Filing4.com is a great place for staying in touch with possible future movement of a particular stock or the stock market in general.

Volume and Bollinger Bands

The way to make money in the stock market is in knowing when to buy a stock before it takes off. This situation can be understood by three factors: (1) knowing which stocks are really strong and news driven, (2) narrow Bollinger bands, and (3) low volume.

Low volume means there is not much current interest in a stock, and this is really the best time to buy it as long as you are buying a strong news sensitive stock. The volume will eventually pick up with a strong stock whereas volume may always be low on a poor stock.

Narrow Bollinger bands mean a stock will soon break out either in the up direction or down. Again, if you are looking at a strong stock, that is the time to buy it for whatever direction you anticipate it will go.

For example, TVIX, the double VIX volatility ETF, was selling for around $20 per share in the first part of June 2011. It also had narrow Bollinger bands at the time along with low volume. It was the perfect setup for a strong stock. It took almost two months before TVIX really started rising significantly, but it began making a moon shot around the first part of August when Congress was so indecisive about raising the debt ceiling. This was a very powerful volatile news driven situation. TVIX made it all the way to $100 per share by the first trading day of October.

Since it is difficult to pick an exact top, the best thing to do is to take profits when you have made three or four times your money and while the stock price is still high. TVIX spent several days in the $80 and $90 range. That would have been a great time to sell. You would have made 400% on your money in four months. A lot of people won't make 400% on their money in a lifetime. It is well worth the patience to wait for the right time to buy and then sell while you still have a great profit. If you can make 200% or more for your money in just a few months out of each year, you could sit on your hands the rest of the time and enjoy life!

Never Go All In

Most people agree that you should never put all your eggs in one basket on just one stock. Diversification is not enough, though. If you own five stocks, and you want to buy one more with $10,000 in cash, you should not buy the new stock all at once with the whole 10K. You should buy it in three or four segments. One thing that I have seen happen many times is your new stock immediately drops in price as soon as you buy it. This could be for a number of reasons.

First, you might not have done your homework. It might be a bad stock. If you only spent $2,500 on your first buy instead of the whole 10K, your losses will probably be minimal.

Secondly, the whole stock market could be going down, and it is taking your stock with it even when it is okay. One example of this is ERX, the 3X energy ETF comprised of major oil companies and other stocks. It looked like it had formed a bottom around $40 per share during August of 2011 and the first half of September. Then, suddenly, it dropped to the low 30s and even below 30 during the last part of September and the first trading day of October. If you had just spent $2,500 on your first purchase of ERX, you could have bought the rest of your position after it went down 25%. Then, you would have made a lot more money with ERX when it came back along with the rest of the stock market in the next month.

Stock Market Instability

The world is waiting to see how the Europeans will handle their financial issues during the week of October 24. It is my guess that we will see more promises rather than definite action. The EU is about as divided as the U.S. Congress. It is difficult to get anything done this way.

I am not planning to buy any additional stocks for the long term until there is more visibility on which way Europe is headed. The same thing could be said about the U.S. also. We have seen some good reports in October, but one month does not make a trend. I am long on the leveraged ETFs ERX and UDOW, but I would rate them as a hold rather than a buy at this level with the Dow at 11,800.

If anything goes wrong with the EU plans, the stock market could fall below 11,000 again. If the market rises on good news, that may be a good time to buy a volatility ETF because the good times will probably not last. If TVIX, the double VIX volatility ETF falls to 40, I will be a buyer. Sooner or later, bad news will reign again in the stock market. If you buy a few thousand dollars of TVIX at a low level, you could quickly double your money when extreme volatility sends TVIX past $80 per share again.

Low Volume Tops

The volume level is one of the best indicators for knowing when to sell a stock. For example, a three month chart of ERX, the 3X energy bull ETF, showed a relatively low volume of 2M shares in the middle of July 2011. ERX was selling for more than $80 per share then. When the August 2011 Congressional impasse began over the debt ceiling, ERX started dropping dramatically on much higher volume until it finally bottomed on the first trading day of October.

ERX was trading at around $30 per share when it had a buying volume surge of more than 8M shares on the second trading day of October 2011. As of October 14, the volume has dropped down to 4M shares. ERX may never reach its former high anytime soon. However, when the volume drops to 2M shares again, that may be the intermediate top for ERX. It so happens that the stock market in general is following the pattern of ERX, too. One reason for that is that ERX is an ETF stock which comprises some of the world's biggest oil companies. So, as oil goes, the market seems to follow, or vice versa. Anyway, it may be time to go short again whenever ERX falls to a low volume level of 2M shares of trading per day.

Paradigm Market Shift

In August of 2011, we experienced the beginning of a new paradigm in stock market investing. While Americans were appalled by the deadlock in Congress over increasing the debt limit, the stock market began to sink uncontrollably. The smart money suddenly realized how hopeless our economy was becoming. Then, in September and on the first trading day of October, the world started taking note of the Greek debt seriously. These events had a profound effect on the stock market. Fundamentals of individual stocks no longer matter that much. Most stocks now move in tandem with each other depending on the macro view of the world economy.

The best way to make money under the new stock market conditions is to buy leveraged ETFs as long as you can buy them near the bottom. The stock market had a tremendous rally during the first two weeks of October after the first bad trading day of the month. Now, we are technically overbought, and we are not near a bottom for either longs or shorts. TVIX, the double volatility VIX ETF, has fallen to $50 from $100 since the rally began. According to the ECRI and other sources, we still might see a recession. So, dark days are ahead again sometime in the future. When TVIX drops to $30 per share, I will be a buyer. Then, in the coming months when the bad news once more rules the stock market, I expect to make three times my investment as TVIX makes another run at $100 per share.

Managing Risk

In a volatile unpredictable stock market, an investor must ask himself or herself "what could go wrong" before every trade. As the old cliche goes, "the devil is in the details." If you enter a bad trade with a leveraged ETF or a speculative stock, the price of the stock could drop 25-50% in three days waiting time before the stock trade settles.

If you invested $10,000 in what you thought was a sure thing, and you lose 30% on the trade, you are down $3,000. What if this happens multiple times? You could lose $9,000 more or less on just three bad trades.

I also have real examples to prove this from the stock market of September-October 2011. ERX, the triple energy ETF, was selling in the $44 range around the middle of September. It was down almost 50% from its high of $85. It seemed like the bottom was somewhere in the low 40s. Then, believe it or not, the stock dropped to $30 per share by September 30. If you had bought it around $44, you would have lost over 30% of your money in two weeks.

Then, for a second example, I'll turn to TVIX, the double VIX volatility ETF. By the end of September, it looked like the whole world was heading into a recession. The respected ECRI even predicted a recession for the U.S. for certain around this time. TVIX jumped up to $100 per share on the first trading day of October. What if you had bought $10,000 worth when TVIX was selling for $100? The stock was selling for $75 per share just three days later. You would have lost $2,500 in less than a week on a trade that seemed like a sure thing at the end of September.

My advice is to limit trades to $2,000 unless you have money to burn. If you make 30%, that is $600, and you should take your profit while you have it. If you lose 30%, it is only $600 rather than thousands of dollars. Even the best traders may only be right 2/3 of the time. If you make 48 trades per year at a 66.7% win rate with $600 gained or lost on each trade, you will be able to keep the $600 on 16 of those trades. The other 32 trades will cancel each other out. $600 times the net 16 trades adds up to $9,600 per year that you could make with just $2,000 of investment money that you keep cycling throughout the year.

Volatility and Volume

Whenever you see increasing volume in a stock with a resulting chart upswing or downturn, that is the time to buy or sell depending on the chart direction. The volume increase I am talking about is five to ten times the normal volume. The volume peaks will sometimes be so high that it looks like a skyscraper rising in a desert.

A classic example of this occurred in August of 2011 when Congress was in a terrible debate over the debt ceiling limit. XIV, the inverse volatility index ETF signaled that tremendous volatility was on the way. The average volume was less than 5 million shares per day prior to its explosive sudden change. XIV first started jumping up around 20 million shares of volume and eventually hit around 30 million shares of volume a couple of times. During this high volume period, the stock price dropped over 50%. If you had sold when the volume first spiked high, you would have only lost a little money versus a lot of money later on.

Whether you owned XIV or not during the August-September 2011 bear market raid, this volatility situation affected nearly all stocks. Even if you don't want to own XIV, it will be very beneficial if you put it on your watch list because it can be a warning signal to sell your favorite stocks in other sectors before you lose a lot of money. For example, ERX, the 3X energy bull ETF lost over 50% in this volatile time also. So, you can save yourself a lot of grief and money if you pay attention to increasing volume in a volatility index like XIV.

Simple Moving Averages

Paying attention to simple moving averages can often tell you when to buy or sell stocks. For example, the 200 day moving average for a broad market index like the S&P 500 tells you whether we are in a bull market or a bear. Generally, if the S&P daily price is above the 200 day average with a positive angle upward, it is safe to be in stocks.

You can sometimes make money if you notice the stock market is in a repeatable trading range. You could dial in a moving average like 13 days or another number to determine when to buy and sell. The danger here, however, is that the stock market might break out of its trading range at anytime, and it might go in the opposite direction from what you expected.

The best use of the moving averages occurs when we are in a bull market. If the trend is pointing upward, you can buy the dips in the price chart. Beware if the S&P 500 is below the 200 day average, though, because most stocks trade together, and you never know when a bear market will end or if it will get worse.

Diversification Plan

An investor must be diversified at all times to avoid financial ruin. This allocation should involve cash, stocks, and bonds among different sectors and companies. Of course, you will have slow growers in the group that limit your overall gain, but putting too much money on one stock because you are certain that it will gain a lot is a recipe for disaster. You have probably heard the cliche "the devil is in the details", and the odds are great that something unknown in the stock market will strike down your favorite stock pick when you are counting on it the most.

For example, suppose you thought the stock market bottom came in August of 2011, and you put half of your money on ERX, the triple long energy ETF. If this was $10,000, and you bought ERX at $40, you would have lost more than 25% or $2,500 before ERX finally hit the bottom October 4 briefly at $26 per share. Then, what if you had a panic attack and sold ERX when it got around $30, and you loaded up half of your money on TVIX because you thought we were going into a bear market? You not only sold while you were down, but TVIX dropped 25% from its high during the first week in October. So, you would have lost thousands of dollars more back to back.

Do not put half or all of your money on anything no matter how desperate or certain you are about a stock or the market direction. You will often be wrong due to unknown stock market variables. This can also be at the worst possible time if you need the money. For example, the Fed might suddenly do some quantitative easing to avoid a recession at the very time you have gone half in betting on a bear market. So, the government could cause a big boost in stocks at any time. Then, the bulls will suddenly take your money before you can get out of a bad trade.

Here are ten stocks you could buy for diversification, and you should sell them whenever you have a good profit on them. Then, keep that money in cash for whenever you can buy them again at the annual low point.

1. ERX, the triple long energy ETF stock.

2. TVIX, the double volatility stock for bad times.

3. AGNC, a REIT that was paying a 19% dividend in 2010 and 2011.

4. TNK, an oil tanker company that was paying a double-digit dividend in 2011.

5. JNK, a bond ETF that pays around 8% annually.

6. RCS, another bond ETF that pays 8% or better depending on when you are in it.

7. MCP, a strong company involved in rare earth minerals.

8. AGQ, a double long silver stock.

9. GLD, the gold trust ETF.

10. DIA, the Dow stocks ETF because they are the strongest group.

Long and Short

Since the stock market can reverse direction at any time, it is a good idea to be both long and short at the same time. The catch is that you have to buy your long or short position when it is near one of its low points in order to profit a lot. Then, when the stock market makes a hard move up or down, you can make 10% in a day if you are in the right stocks. If the macro movement of the market is firmly in one direction for weeks at a time, you could even make as much as 100% or more in leveraged ETFs.

For example, the stock market had been beaten down for weeks at the end of September 2011. Then, on the second day of trading in October, the Dow jumped 153 points signaling a possible change in the trend direction for stocks. ERX, the triple long energy bull ETF that is related to oil, jumped 8.5% for the day. If the stock goes from its low of $28 to its high of $85 in the next few months, you will have a 200% gain! Even if it takes a year for ERX to climb to its former high, a 200% gain would be fantastic for a year's investment.

Then, on the other side of the coin as I have recently suggested, TVIX is great stock to own whenever volatility is high and times are gloomy for stocks. The financial condition of the U.S. and the world is still on shaky ground. You could have also made over 200% on this stock if you had bought it in June or July before the stock market started its downtrend.

So, remember to buy winning stocks when the market is going against them. Then, simply hold on for a few months for double or triple digit gains whenever the general trend goes a couple of months to the downside or the upside. There is enough bad news in the world to bring stocks down for an extended period at least one time each year. Then, on the other hand, we have enough bulls in the world to send stocks up for at least a couple of months each year. Just be willing to buy winning stocks when they are cheap and have the patience to wait until they jump significantly in their prices. You only have to hang on a few times each year to make a fortune!

Sell REITs

Now is the time to sell your real estate investment trusts. The double-digit dividends will not offset the double-digit capital losses that are on the way due to recession fears. Highly respected Annaly Capital fell almost 5% on Monday, October 3, 2011. American Capital Agency dropped around 4.5% in addition to previous declines. Then, for a real scare, Armour Residential slid 13%.

REITs are great when interest rates are low as long as there is no immediate chance of a recession. They can easily borrow cheap money, and then farm it out for a much higher rate. But only a few people will have any money to spend in a recession or depression. Hence, REITs cannot make money in today's environment where the world is about to tear apart at the seams. Financial catastrophes are looming in the U.S. and Europe. China cannot bail out everyone either because they are starting to have problems of their own. TVIX, the double VIX ETF, has gone from $25 at the start of August to $100 today. It can probably go to $160 before the volatility ends. If you don't want to be in cash or quality bonds, TVIX is your best bet for profit when the stock market makes an avalanche to the bottom.

Stock Market Volatility

If you have not heard already, the Economic Cycle Research Institute said recently that a new recession is unavoidable. This is a reputable organization that is stating this situation based on economic fundamentals. Technical charts have also been pointing out this fact for the last two months. Now is the time to be in cash, in stock shorts, or long volatility indexes like VXX or TVIX.

For example, TVIX attempts to double the current VIX volatility reading. It was selling for $89 per share at the market close on September 30, 2011. If you had been paying attention to TVIX at the first part of August 2011 when Congress was deadlocked, you could have bought the stock for $25, and you would have made over 200% so far on your short-term investment. The 9-day simple moving average crossed over the 50-day moving average on high volume in the first week of August, and that was the signal to start betting on TVIX. As the bad events of August and September gradually unfolded, TVIX made its rocket run.

It is not too late to buy TVIX, though. If the ECRI and other bears are right, a new recession will push VIX to a reading of around 80 like it was in the last bear market, and TVIX will be selling for around $160 by then. So, you can buy now and make over 75% while the stock market sinks in the coming months.

Deflation versus inflation

The current stock market condition at the end of September 2011 was a deflationary environment rather than inflation. The ECRI is indicating a recession ahead. Money availability is tight, and people will not be spending much at all. This situation has caused oil, gold, silver, and copper to fall. The only stock market bets that are dependable are shorts and volatility ETFs like VXX and TVIX.

Normally, when interest is low, stocks will grow. When the Federal government is printing money, stocks will grow also, and this is when gold and silver will be bought as a hedge against inflation. However, the FOMC is not currently doing any more quantitative easing. Since inflation is no longer on the horizon, people will prefer cash and bonds over stocks and precious metals. So, an investor needs to be aware of the macro view of the economy at all times to avoid financial loss.

Bear Market

The stock market is now in a bear market downtrend. Several reasons can be given for this from both charts and fundamentals. The S&P 500 is having lower lows and lower highs. ERX, the triple bull oil ETF previously had a trading range between 39 and 48, but it has now broken down to the $31 area.

The FOMC is also out of bullets to fight unemployment and boost the economy. Our current situation is very similar to Japan's economy where their stock market has not recovered in 30 years in spite of low interest rates. The government cannot raise money to create jobs because the Republicans will not allow it. The IRS will have a constant shortfall in funds until millions of the unemployed are put back to work. Then, to add more grief, China manufacturing is down and Greece has not yet been fully delivered from its financial problems.

What can we do to make money in this environment? You can make big bets on more volatility. The VIX is now more than 40 and climbing. The VXX volatility index ETF is over 50 and TVIX is around 90 and steadily climbing. I think VIX will ultimately make it to 80 just like it did in 2008 when financial problems were great and a recession was coming. Now is the time to buy TVIX, the double VIX ETF. If VIX goes to 80, TVIX will go to 160. That will be a 77% gain from the current TVIX price of around $90. Even if TVIX does not get to 160, it will surely be a double-digit gain from here while the rest of the stock market tanks. Please do your own research before buying or selling.

Volatility Indexes

Money can be made in the stock market during volatile times whether the stock market is going up or down. One stock to watch is XIV, the Inverse VIX ETF. This inverse volatility stock started going down on large volume around the first part of August when the U.S. Congress staged a harmful gridlock over raising the debt ceiling. The fact that XIV was falling hard was a warning of trouble ahead in the stock market. You should have moved to cash or bonds at that time, or better yet, you could have bought TVIX, the double VIX long ETF. You would have made a fortune on TVIX as it surged toward $80 per share.

Then, alas, the stock market changed course again at the end of September. XIV had fallen to less than $6 per share. But things changed on Monday, September 25, when it looked like there was relative calm in the U.S. and it appeared the financial problems of Greece would once again be avoided. XIV jumped more than 3% back over $6. I put in a buy order for the next day. I'll hold it until the charts tell me to switch to TVIX, the opposite. In this way, I am always in to win.

Fibonacci Trading

Trading by the charts and Fibonacci numbers is highly controversial, but the fact is that many institutions and investors take these trading tools seriously. So, if you learn to trade like the big boys, you will also profit like them whether we are in a bear market or a bull market.

Some of the common Fibonacci ratios are 50%, 38.2%, 23.6%, and 61.8%. These ratios apply to the downside as well as the upside although the stock market will not stop exactly on these numbers since there are many factors involved in the market. These ratios are a good approximate guide, though.

For example, ERX, the 3X Energy Bull ETF, fell approximately 50% from its high of $85 to its recent bottom averaging around $40 during the stock market downturn between July and September of 2011. It was useless to buy ERX while it was descending to the bottom of its range, but as soon as the bottom was established at around $40 per share, it was time to buy. In charting, bottoms are known by flat lines, bowls, and W patterns. ERX has shown a stable trading W pattern in the past few weeks.

Money can be made in bear markets by trading the multiple rallies in stocks. Since ERX involves oil, the strongest commodity on earth, it will not be held down long. For every 1% increase in the price of oil, ERX moves up 3%. This means that ERX can easily advance 20% in a few days during the rallies. It has also done this in reality by making a number of advances from around $40 to $48. You could have made 20% on each of these rallies, and at least three of these excursions have occurred at the time of this writing. You would have gained 60% on your money if you had bought near $40 and sold each time at $48. This could have been done in a mere month's time also. Imagine how much money you will make in a year's time if you can make 60% each month.

So, remember that the Fibonacci numbers apply approximately to the upside and the downside. If a good stock is down 50%, it will probably have rallies in the range of 23.6% from the bottom which you could round off to 20%. Simply buy a good stock like ERX at the bottom and add 20% to that price for your sell order. In this way you will make a fortune in the stock market.

Safe Stocks

In today's troubled stock market, it is hard to know exactly where to put your money. If you don't have the time and daring for trading, you could allocate your money in five relatively safe stocks with 20% portions in each one.

The first stock to buy would be DIA, the Dow 30 ETF. DIA is comprised of the strongest industrial stocks in the market. The Dow will eventually come back if anything does. Since we appear to be near a stock market bottom, there is not much downside in holding this position, and it will be a nice capital gain when the stock market recovers.

The next two positions involve REITs that pay a 19% annual dividend. American Capital Agency (AGNC) is one of them, and Armour Residential (ARR) is the other one. ARR also pays a portion of the dividend each month while AGNC pays quarterly. As long as interest rates remain near zero, these REITs will be able to continue paying large dividends.

The final two positions are bond funds that are currently paying around 8% annually. They both pay a portion of the dividend each month. JNK, SPDR High Yield Bonds is one of them, and RCS, Pimco Strategic Global Bonds is the other one.

So, 80% of this portfolio involves nearly immediate monetary gain through dividends, and the 20% Dow portion will probably soon be a 20% gain from the September 9 stock market bottom.

Oil Is King

Money can be made even in the terrible current stock market where we are seeing more downside than upside. The financial conditions and unemployment of the U.S. and the world will assure that the stock market has limited gains. We are basically in a bear market where there will be multiple rallies many times during the year. If you make 10 to 20% per month on these rallies, you will make more than 100% for your money each year.

ERX, Direxion's 3X Energy Bull ETF, has shown a very dependable trading range in the past six weeks. It has traded in the range of 40 to 48 (plus or minus some) a number of times during the past several weeks. If you simply buy it in the low forties and sell when it reaches 48, you can make 10-20% every week or two. This is the way to make a fortune in the stock market predictably!

Since oil is the core of ERX, you can always count on it rising from wherever the stock market might drop it. Oil is the most valuable commodity in the world, and we cannot do without it. Sure, we may have intermittent demand pullbacks, but eventually demand will be greater than the supply, and prices will go up. For every 1% oil rises, ERX rises 3%. This is why 20% gains can be made often by owning this stock. Simply sell most of your shares every time the stock reaches $48. You could also hold some shares indefinitely since ERX will most likely make it back to more than $80 per share sometime in the next six months.

Stock Market Downtrend

The Dow suddenly fell 253 points on Friday, September 2, 2011, after a terrible jobs report where it was reported that no new jobs were created in August 2011. We must have positive job creation just to stay up with population growth, and the current unemployment rate is 9.1%.

Since the large drop on the Dow indicates that institutions are involved in the sell-off, the selling will most likely continue during Labor Day week because institutions cannot dump all their millions of shares in a single day. This presents an opportunity to gain money on the short side during the next few days.

Another reason for the downtrend to continue is that President Obama is planning a jobs creation speech for Thursday, September 8. The Speaker of the House has already announced opposition to Obama's plans. This will reopen the deep wounds suffered in Congress during the debt ceiling debate during the first part of August. So, more negative fuel will send stocks lower this next week.

The way I plan to trade this situation is to buy three stocks that rise in a bad stock market. One of them is FSG, FactorShares 2X Gold Bull/S&P 500 Bear. A second ETF is TZA, a triple small caps bear stock. A third ETF is FAZ, a triple bear for financial stocks.

Do not hold these leveraged ETFs more than a week or two because we will probably have a relief rally in stocks whenever QE3 becomes more certain or whenever big investors decide to scoop up stock bargains.

Choppy Stock Market

There seems to be no end to the bad news of the summer of 2011. We had unbelievable dangerous gridlock in Congress over such essential things as social security, Medicare, and national debt. We had the S&P credit downgrade to AA status which will make borrowing money harder for the government. Then, to top it all off, the August jobs report showed that zero jobs were created in August. We must have positive job creation just to stay ahead of population growth, and the unemployment rate is currently 9.1%.

Labor Day week will also not bring any relief. President Obama is scheduled for a Thursday job creation speech, and the Speaker of the House has already promised opposition. This impasse will reopen the deep wounds we already suffered in Congress at the start of August. How can a person get ahead in the stock market under these conditions?

The solution is to play both the long and short sides through ETFs. You must quickly take profits when you are up 10-20%, though. As fast as the stock market is revolving now, you can conceivably make 20% in something on any given week almost. If you just invest a mere $5,000 to be long or short, you can make $1,000 on that money nearly every week. If you can do this during 50 weeks in a year, you will have gained $50,000 on your $5,000 investment money. This is a ten-bagger even while it is not being done in the traditional favorite stock fashion.

On the long side, I recommend ERX, the triple energy bull ETF. It has shown a range between $39 and $48 and higher in these choppy times. As long as you can buy ERX at $39 or $40 and sell it at $48, you have a certain 20% gain. Just be sure you take profits when you are up because it won't last.

On the short side, I recommend FSG, FAZ, and TZA. FSG is a gold double long simultaneously with a double bear short on the S&P 500. FAZ is a triple financial bear ETF. TZA is a triple small cap stocks bear ETF. Just be sure you take your profits when you are up 10-20% because there are still positive forces in the stock market that will cause relief rallies on the long side.

Bull Market

When do you know it is safe to buy stocks? Bull markets primarily occur when interest is low, when housing sales are increasing, and when unemployment is dropping. We only have one of these necessary factors for a bull market in August of 2011, low interest rates.

If we did not have the low interest rates, it would be an all-out bear market instead of just a marginal bear. This is a situation where you should sell the rallies to make a small amount of money, to break even, or to take a small loss. Eventually, you will make money on leveraged ETFs like ERX if you have bought low enough.

Another bad thing about the current market is that you cannot go all-in on shorting the market either. With the Dow sitting below 11,000 we are probably at the bottom because the bad news is not really the end-of-the-world hype. So, it is a waiting game. Another question is how high can the bull rallies go in this kind of market?

The bottom line is that you cannot buy and hold growth stocks right now because they will not go anywhere of significance. Bonds and REITs seem to be the only investments that are relatively safe currently. I recommend AGNC, ARR, JNK, and RCS if you want to collect some interest money.

Best Stock To Buy

This is August 14, 2011. The Dow just went through one of the most volatile weeks of all time. It dropped more than 600 points on Monday, but it had recovered the losses by Friday.

In the meantime, ERX, Direxion's 3X Energy Bull, dropped below $40 per share at one point during the week. It had recovered to $47.89 by Friday. It is the best stock to buy right now because oil is still in great demand, and this situation will continue to exist since China and India need gas for all the cars their people are buying for the first time.

I own 148 shares of ERX in one of my stock trading accounts. That amounts to $7,088 currently invested in the stock. If ERX goes back to $85 per share, my 148 shares will be worth $12, 580. I expect the stock to reach $85 again in two months or less since the oil demand has not diminished. So, I will earn more than $5,500 in a short amount of time. Then, when the Dow falls again along with ERX, I will be a buyer again at these low levels. This is the way to win on Wall Street!

Stock Trader Diary

The stock market drop of this past week presented fantastic opportunities to buy stocks at unbelievable lows. ERX, the Direxion 3X energy bull, dropped briefly below $40 per share. I loaded up with more shares as fast as I could while ERX was selling in the $40 to $50 range.

Since ERX is tied to the price of oil, and oil demand is not going away anytime soon, this was the bargain of the year. This stock can easily rise to more than $80 per share because it has been there before. That is a 100% gain from the low price of the stock. It has already gained 20% from the low with the current price of $47 and change.

Buy UGL When Gold Drops 5%

UGL is ProShares 3X Gold Bull ETF. This stock is a great buy whenever the gold index or GLD pulls back 5% or more. UGL tries to make three times the advance that gold is making. If gold is advancing 16% per year, UGL should be making 48%. It may gain slightly less than three times gold, but it will be close enough to make a lot of money. Currently, UGL has good support in the $75 price range. If you want to play it extra safe, you could sell UGL whenever the price drops below the 9-day simple moving average. Then, buy it again when the daily price crosses above the 9-day average.

Stocks For The Dow Going Higher

One way to make money in the stock market is to pay attention to the Dow each week using the DIA exchange traded fund as a reference point. If the Dow is down a few weeks in a row, it is time to buy leveraged ETFs like UDOW, TNA, and ERX because these stocks will quickly rise from the bottom of a general stock market pullback. If you go to Yahoo and call up a chart of DIA and then compare the Dow ETF to these three leveraged ETFs, you will quickly see how you can gain a lot of money by owning the Ultra Dow (UDOW) and the other two at the right time.

TNA is Direxion's 3X bull for small cap stocks, and ERX is Direxion's 3X energy bull involving mostly oil stocks. Not only are these stocks great for coming off the bottom, they also beat most stocks when the general stock market is going higher with a powerful bullish trend. So, you can even be profitable if you are late to the party as long as you don't stay too long. If you find one of these leveraged stocks already up 10%, they could have another 10% to go before they pull back. You could basically figure 20% upside from the low point for placing a profitable sell order. Just be certain to take profits while you are up because these stocks will fall fast in a downturn.

Safe Investing

Many companies nowadays are letting employees control their 401K plans. For example, if a company uses Charles Schwab as their plan administrator, the employees can buy individual stocks under a Personal Choice Retirement Plan. We also have popular online brokers where individuals can set up trading accounts. TDAmeritrade and Scottrade are two of these places.

I have accounts with all three of these brokers. It is great to have the power to control your own destiny in the stock market, but an inexperienced investor will lose a lot of money fast if he or she does not have a good game plan. I recommend watching CNBC to learn about the stock market along with making SeekingAlpha.com one of your favorite investing information websites. You can also buy investing books.

As for a good diversification plan, I believe that investors of all ages should have at least 1/3 of their money invested in bonds. This can be in U.S. Treasury bonds or bond ETFs that trade like stocks. Two ETFs that I like are RCS and JNK. They both pay around 8% annually, and you are paid a portion of that each month.

The other 67% of your money should be invested in several different stocks in different sectors. For example, AGNC is a real estate investment trust that pays around 19% annually through quarterly dividend payouts. This stock would be a buy and hold as long as they continue to pay a double-digit dividend. I recommend putting 15% of your money in this stock.

That leaves us with 52% left to invest. This should be divided equally into four 13% sections. Since it is difficult to always pick good stocks, the safest plan is to invest in four strong ETFs (exchange traded funds) such as ERX, DGP, UDOW, and TNA. This provides good diversification for your money.

ERX is a triple bull fund involving energy, primarily oil. DGP is a double gold fund. UDOW is a triple Dow stocks ETF. TNA is a triple small cap fund.

You must do some homework before you buy these four ETFs because you may be buying at the top and selling for a loss if you are not careful. You will need to buy these stocks only when the Dow has been down for a few weeks. Then, you must quickly sell them whenever you are up 20 to 25%. This means that the money you spend for these stocks may be sitting in cash for half the year. That is great, though, as long as you make a profit each time you buy at a stock market bottom.

This is a plan that will safely work for double-digit returns each year on average. Please do your own diligence for buying and selling at the right times.

Fibonacci Stocks

An investor faces numerous problems in buying and selling stocks. You must know which stocks are worth buying, and you must sell the stocks while you still have a profit rather than a loss. Since the stock market is constantly going up and down, you need to have some idea of how far it might go up from a bottom or a pullback. Even if you are a buy and hold investor, what happens if the market crashes 50% like it did in the financial crisis 0f 2008-2009? What if you need to get your money out when the stock market is in a bad downturn?

The solution is to sell whenever you have a good profit. Then, get back in when a pullback occurs. This is why a lot of investors and institutions follow technical charts for buying and selling. I recommend that you learn how to read charts, but there is another protective step you need to take also. Be familiar with the Fibonacci numbers that many stock market people use to predict chart patterns.

The actual Fibonacci number series goes like this: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on. Each successive number is the sum of the previous two numbers, like 2+3=5, and 5+8=13. The stock market, however, uses a variation of this system. If you divide two successive numbers out to infinity, you will arrive at the golden ratio of .618. It is not obvious at first when you are dividing 1 by 2, and 2 by 3, but the rest of the number divisions like 5/8, 8/13, 13/21, 21/34, 34/55, and so forth come very close to the infinity ratio .618. So, this is one percentage number stock market technicians use for estimating deep pullbacks of stocks.

There are two other important numbers, .382 and .236. The first number is derived from dividing one Fibonacci number from the second successive number away, like 5/13 or 8/21. Then, the .236 ratio is obtained by dividing one number by the third number away in the sequence, such as 8/34.

These three ratios .618, .382, and .236 are often used to chart possible support levels for a stock whose price is falling. There will be many buyers for good stocks when they are a little over 20% down (.236). 50% down is also sometimes used, which would be 1/2. These ratios can also be used to determine the upside potential from stock bottoms or pullbacks.

Usually, stocks will be ready for a pullback when they have gone up 20% or more. Thus, if a stock's chart looks like it is rising from a bottom, simply take that price and multiply it by 1.236 to get a possible selling target that is a little more than 20% profit. If the stock can be bought for $20 after a pullback, you will want to sell when the price rises to $24.72. Of course, a strong stock could rocket 38% (.382) before it falls again. The point is that you need to have a plan for selling a stock while you still have a profit. You can always get back in later after a pullback because the stock market will never go straight up without a break.

These pullbacks will happen many times during each year. If you can set your sell targets 20% higher just five times per year and successfully take your profits, you will be making 100% on your money every year. This is highly possible if you are paying attention to the up and down cycles, and you have good stock picks. Remember also that many institutions use charting and Fibonacci setups to determine their buying and selling. There will be enough big boys playing the game in an organized fashion so that you can profit from their moves if you know what their probable steps will be!