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Friday, August 12, 2011

8/12/2011 - Embracing the Volatility for Major Profits

Embracing the Volatility for Major Profits!

Mike Larson | Friday, August 12, 2011

These are some of the most volatile markets I’ve ever seen. Down 630 points on the Dow Jones one day. Up 430 points the next.
And that’s not all! We’ve seen $50-$70 daily moves in gold … 8-cent moves in the value of the Swiss franc … $25 collapses in the price of oil in just a few days. It’s enough to make your head spin!
Me? I’m not running and hiding! I’m EMBRACING the volatility! And I recommend you do too — because volatility like this presents some of the biggest profit opportunities of our lifetimes!
What’s Causing the Volatility Wave —
And How to Surf It!
By now, you should be wholeheartedly aware of my bearish, big-picture, fundamental outlook. I have repeatedly warned in the past several months to dump most stocks … dump all REITs … buy gold … and buy inverse ETFs that rally when stocks fall.
My view: This multi-pronged strategy would help prepare you for a double-dip recession, second “top” in real estate, and second phase in the great credit crunch. Sure enough, each and every one of those strategies is now paying off — in aces and spades!
Late last week and Monday, for instance, the market collapsed. We got the sixth-biggest, one-day point decline in Dow history. Fear gauges surged, banks collapsed, and everything from junk bonds to REITs imploded.
So what did I do?
I took profits on several positions that I put on BEFORE the crisis. And not tiny ones either — subscribers to my services enjoyed gains of as much as 100 percent in two months, and 31.1 percent in 10 days, depending on the investment vehicle and strategy.
Why take so much exposure and so many profits off the table? Because I knew we were finally seeing whiffs of real panic, and because my technical indicators suggested we were due for a short-term, potentially serious bounce.
Did I panic when the market slid 630 points one day then shot up 430 the  next? Heck no! I snagged big profits.
Did I panic when the market slid 630 points one day then shot up 430 the next? Heck no! I snagged big profits.
Then what happened? On Tuesday, the Federal Reserve came out and pledged to keep interest rates low through mid-2013. That ignited a rally of several hundred Dow points from the intraday low.
Never mind that the Fed pledge was well telegraphed, and one of the least powerful of all the options policymakers had on the table. It still “worked” from Ben Bernanke’s perspective, which I’m sure was to goose the stock market after its epic collapse.
Because they took so many profits off when things looked much uglier, though, my subscribers weren’t really hurt. They sailed right through the volatility. Better yet, they now have fresh ammunition to use when the next oversold rally strikes.
Major Takeaways from
This Play-By-Play
Why am I walking you through this trading “play-by-play?” Because if you want to protect your wealth — and profit — in these kinds of markets, you have to understand how to surf major volatility waves! It is absolutely imperative NOT to just buy and hold, but rather to add inverse positions on rallies and take profits into declines.
That was what worked in 2007-2009, and it’s what will work this time. I say that because conditions are very similar now to what we saw then. Only now the locus of the credit crisis is sovereign bonds, countries, and currencies, as opposed to private banks, brokers, home builders, and the like then.
Finally, for those of you who are not comfortable with a more rapid trading pace, let me just say this: You do NOT see these kinds of hugely volatile moves in a bull market. You see them in bear markets — like 2000-2002 and 2007-2009.
I believe that’s what we re-entered this summer, and that we won’t exit it again for a long, long time. So invest and plan accordingly!

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