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.