Tuesday, September 9, 2008

Making Money in this Volatile Market

Today is one of those “Life Happens” days so I don't have time for my usual in depth analysis, but I do want to alert all of my faithful readers to the fact that the VIX, the volatility index, crossed the 25 mark today. We've looked at the VIX before and have seen that bear markets happen when the VIX heads above 20, and bull markets occur when the VIX drops below 20 and stays there. The 25 level is of special note to traders because it strongly indicates that the market will be heading lower, at least for the near-term.

How low can we expect to go? The weekly chart of the S&P below shows a trendline drawn through the lows of previous market bottoms. We can expect the next bottom to be put in when it hits that line, probably in the region of 1150-1175.

So how can we profit from this down market, besides shorting Lehman? Well, the ultrashort ETFs are sizzling hot especially those covering the energy and materials sectors, such as the DUG (Oil & Gas), DZZ (Gold), and the SMN (Basic Materials). Other ultrashort funds on fire are the FXP (China), the EEV (Emerging Markets), the EFU (Europe, Australia, Far East), and the SSG (Semiconductors). If you throw a dart at a list of the ultrashorts, you probably can't go wrong. (See July 1st and 2nd blogs for further info on ultrashort exchange-traded funds.)

That's it for today. I apologize for the grim outlook but even the darkest thunder cloud has a silver lining, and the ultrashort ETFs are a good way to make a buck--at least as long as market volatility remains high.
Note: You can find a list of short and ultrashort Proshare ETFs here: http://www.proshares.com/funds

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