Tuesday, September 1, 2009

The Long Awaited VIX Breakout

At least long awaited by me as a bear! This should be the real deal and I believe indicates that the next leg of the bear market has begun, although markets don't move in a straight line and a rally back up to re-test the highs before a rapid fail is conceivable. Cash (including U.S. Dollars and Gold) and being short are the best trading positions right now in my opinion. If you are not short yet and want to be, remember to wait for a bounce higher first.

Here's a one year linear candlestick chart of the Volatility Index ($VIX):

The $VIX breakout corresponds with the S&P 500 breaking down out of its' terminal wedge, a not unexpected occurrence (11 month linear candlestick 60 minute intraday chart):

My tentative game plan is to stay short the silver miner Pan American Silver (ticker: PAAS) for a little longer, try to close the puts at a decent profit when things start looking oversold on a daily chart, then consider going long Goldcorp (ticker: GG) or the GDX ETF for a short-term trade if either gets whacked good and hard. In my idealized world, I will get out of the short-term Gold miner long trade, switch to going heavily short general stocks for the second deeper equity plunge, then bet the ranch going long Gold miners say around November or December. These things are all subject to change depending on market action (such is the life of a speculator, as markets rarely give us what we ask for...).

Remember, though I am wildly bullish on Gold miners in the long term, we are still in the middle of the worst cyclical general stock bear market that most of us will get to see in our investing lifetimes. I am not interesting in being loyal to Gold stocks, I am interested in trying to make money speculating. I own plenty of physical Gold as my "safe," long term cash holding, since Gold will continue to vastly outperform the stock market like it has the last 10 years. Once we are closer to the next intermediate-term bottom in general stocks, Gold stocks will start to move higher regardless of the general stock market. But we are not there yet. For now, I am short. I promise that I will shout loudly once I think we're near the bottom in Gold stocks (like I did last fall).

Wikinvest Wire