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.