Back on November 1st, 2011 is when I first noticed the signals that the markets were going to move sideways. I informed subscribers to my “Go With The Flow” Index Trading Strategy to move to cash.

Two weeks later on November 15, 2011 I noticed the S&P was forming a triangle pattern. I immediately released the first post in this series alerting all my readers to this pattern and to the upcoming move.

Just as I predicted, the move occured the very next day as the S&P broke out of it’s triangle to the downside. This was the signal to go short on the S&P. To short the S&P, all you need do is buy SPXU. It goes up when the S&P falls.

On November 20, 2011 I posted the second post in this series. I once again alerted my readers here that the S&P broke through it’s support and it was time to short the S&P.

Now that it was clear the S&P was falling it was time to buy SPXU. The new question is, when is the right time to exit SPXU?

To find the answer we turn to a post I did back in 2009. In that post, I described the Symmetrical Triangle Pattern and how to use it to tell when is the proper time to buy and sell a stock (I used IBM in the example). You can use this same strategy whenever you see an index form the triangle pattern.

In the graph below I’ve plotted the proper times to trade the S&P 500.

Since the S&P broke out to the downside, the proper time to buy SPXU (an Exchange Traded Fund that goes up when the S&P goes down) is at the open on November 17, 2011. SPXU opened at $15.06.

The proper time to sell is when it reaches line 4. That occured November 25, 2011. SPXU closed at $17.05 giving us a gain of 16.2%.

If you remember the rules for the Symmetrical Triangle, the support line (or sell price) is calculated by taking the height of the opening of the triangle. This is the difference between the #1 (around 1290 on the S&P) in the above graph and the #2 (about 1214 on the S&P). 1290 – 1214 = 76.

So there you have it. Now all you need do is figure where the S&P was when it broke out to the downside (around 1236). You then take that number and subtract 76 (1236 – 76 = 1160). Line 3 in the graph above represents 76 points on the S&P.

So now you know to close SPXU when the S&P hits 1160 (which it did November 25, 2011).

OK now that we close SPXU it’s time to profit off the S&P as it goes back up. To do that we buy UPRO. It goes up when the S&P goes up. On November 25, after we close SPXU we now move into UPRO. UPRO was $47.61 at the time.

Now that we are in UPRO, we need to calculate when we should close our position. To do that we once again turn to the rules of the Symmetrical Triangle.

The line marked “5″ should now be the resistance line. That is when you should close UPRO. The S&P hit that line on December 1, 2011. At the time UPRO was at $58.71. With a buy price of $47.61, thats a gain of 23.3%.

Now if you take your investment and make 16.2% the first time, then roll it all over and make 23.3% the next time, you would now have a compounded return of 43%!

Where is the S&P going next? I’m predicting it will move lower and trade within the shaded area (see the graph above), or at the least , move along line 5 in the short-term.

Rules for the triangle:
http://www.stocklocater.com/content/symmetrical-triangle.html

Previous posts in this series:
http://www.stocklocater.com/content/market-outlook-for-november-2011.html
http://www.stocklocater.com/content/market-outlook-for-nov-20-2011.html

Click here to learn more about my “Go With The Flow” Index Trading Strategy.

During this same time period, my portfolio has risen over 50%. How was I able to do this?

First, if you take a look at a chart of the S&P 500 you will see the market didn’t move sideways for five months, but rather had a series of ups and down and has now ended back in the same spot it was five months ago.

Those investors following a “Buy & Hold” strategy have just wasted five months of their life for no gain. The secret to big gains is to play the ups and downs of the market! Here is how it works:

First we need a vehicle to invest in. Now since most stock investors think of “stock” as an investment vehicle, the sad fact is.. about 25% of stocks will move in the opposite direction of the markets. If you are investing in stocks while the market is rising, there is no guarantee your stock will rise also. But what if there was a guarantee?

Enter the ETF. Exchange-traded funds (ETFs) are innovative investment vehicles. They are built like mutual funds and trade like stocks. For example, you can buy an ETF that mimics the S&P 500. So when the S&P gains 5%, that ETF will also gain 5% (or close to it). It’s what we call a sure thing. Everytime the market goes up, your ETF will also go up. You can’t say the same about stocks.

But wait. It gets even better. You can also make money when the markets drop. In the old days that meant “shorting” stocks which left you at the mercy of your broker if the trade goes wrong. You could lose it all. Extremely risky.

Today, there is what’s called an “inverse” ETF. This ETF goes up when the markets drop. You trade these just like a stock so it’s easy to profit when the markets fall.

Now that you know how to profit in up and down markets, now it’s time to supercharge your returns. To do this you invest in a “leveraged” ETF. These currently come as 2x and 3x. For example, if the S&P rose 5%, your 3x ETF would rise 15%. How sweet is that. The same goes true for Inverse ETF’s.

To sum it all up. Simply buy an ETF (TNA, UPRO, BGU are some) when you feel the markets are rising. When you feel the markets will fall, invest in an Inverse ETF (BGZ, SPXU, DOG, plus many more).

The only thing you’ll need to master with this trading strategy is timing. How good are you are telling when the markets will fall or rise? There are big returns to be made if you are good at market timing.

If you are like most investors you are always getting in and out at the wrong time.
All is not lost. For less than $11 a month you can subscribe to my stock alert service amd I’ll email you when the markets are about to rise or fall (in 2011 it’s been about once a month). I’ll even tell you which ETF to be in at any given time.

If you would like to consistently out gain the markets (I’m currently up 63% in 2011 vs the S&P’s 6%) than I urge you to join me today by clicking the link below:

Click to learn more about my profitable ETF investing strategy.

So how do you know when the market is about to rise? More importantly, after you ride it up, how do you know when to get out?

All these questions were answered some time ago in a previous post I made here. If you haven’t watched the video yet I urge you to do so before you continue. Watch this video first before proceeding: Easy Stock Market Predictions

Now that you understand the investment strategy, here is how I applied it recently to make 33% return from August 12, 2010 to October 14th, 2010.

First I made an Excel spreadsheet (as outlined in the video) to enter each days score and to keep a running total. You can download my spreadsheet here for your use.

To ensure a greater chance of a successful trade, I modified the original strategy from using a 3 to using a 4. Whenever the running score hit +4 or -4, that was my signal to get in and my signal to exit.

I used a 3x S&P ETF, symbol UPRO, for the investment. In the graph below you can see where my entry point was and where my exit point was. UPRO gained 33% during that short two month time frame.

This is a simple investment strategy that anyone can do in minutes. Best of all, it’s free to implement and use.

 

“Since 1983 it has taken an average of 15.7 barrels of oil to buy one ounce of gold”.

Now you are probably thinking, “Big deal, how can I use that information to make money?”

Here lies the beauty and the simplicity of this strategy. First you need two pieces of information, the current cost of gold and the current cost of oil. You can get that information at the following websites:

Gold: http://goldprice.org
Oil: http://oil-price.net

On September 1st, 2009 Oil was 73.02 per barrel. Gold was 955.20 per ounce. Now you take the price of gold and divide it by the price of oil, 955.20 / 73.02 = 13.08.

Now that we know that it takes 13.08 barrels to buy one ounce we can see we are below the 15.7 average. This number of 13.08 is telling us that Gold has to rise and/or Oil has to fall in order to go from 13.08 to 15.70.

Since we now know which direction Gold and Oil should move, we buy a Call on Gold (because we know it’s going up) and buy a Put on Oil (since it is going down). To buy these options we need stock symbols to work with so we use GLD for Gold and USO for Oil.

Since you don’t know how long it will take the pair to go from 13.08 to 15.70 I suggest you buy options that expire in six to 12 months.

On September 1st, USO was around $36 a share so I bought UBOPK for $480 a contract. The option expires in April of 2010 and gives me the right to sell USO for $37 a share.

I also bought the Call (GLDAP) on GLD for $490 a contract. The option expires in Jan of 2010 and allows me to buy GLD at $94 a share (GLD was currently around $93 a share).
Now I am covered. When Gold rises and Oil falls I make money. Well I didn’t have to wait long.

One week later GLD went from $93 to $97 and USO went from $36 to $35.

My options which originally cost $970 ($480 + $490) were now worth $1,390. That’s a 43% return (UBOPK is now at $580 per contract and GLDAP is at $810 per contract).

In one week the gold/oil ratio went from 13.08 to 14.64, moving closer to the 15.70 target.

So the next time you find this gold/oil ratio much higher or lower than 15.70, use this strategy to make yourself a big return.