HC: Modern day investing is merely a form of gambling due to the presence of High Speed Trading Programs, Fed interventions, the lemming-like trading strategies of hedge funds, etc. That being said there is strategy that gives you better odds...like the ability to 'count cards' in blackjack. I know with 100% certainty that our equity markets, indeed the equity markets worldwide, are heading for a long slow implosion. But unlike the crash of fall 2008-March 2009 it won't be a sudden, straight line drop. Instead we are in a bouncing ball bear market of epic proportions, the worst since 1929-1932. Simply by timing your 'bets' to the VIX will lead you to superior returns. With a VIX above 40 there is real fear in the market. That is the time to be long, the time to buy stocks in anticipation of a counter-rally. That is where we are now and have been since Aug 9th. When the VIX drops under 20 we are approaching market complacency. At that point you start to unwind your long positions with a series of sell orders that the market will rise into. As the VIX drops further, say under 18, it is time to start going short...to accumulate short funds like DOG (or my favorite PSQ) with a series of buy orders at descending prices. The lower DOG or PSQ go the 'shorter' you get. Tops and bottoms are impossible to know in advance with precision, which is why you place good until cancelled orders in a series once the VIX triggers a buy or sell signal. Utilizing this methodology it is possible to capture 70-80% of each significant move. You essentially dollar-cost-average into a favorable average price.
After the S&P bottomed at 1101 on Aug 8th it was time to cover your short position and go long. Your purchase of DOG was untimely. Sell it now and buy it back when the VIX drops to 18. Go long on any dips. When we have a 200 point sell-off day buy some long positions in DIA or SPY or QQQ. Keep them through market fluctuations until the VIX drops under 20. Weather the inevitable temporary reversals of fortune that always occur. Act methodically, not emotionally. When it is time to buy and go long (like now) only risk up to 50% of your risk capital (because the overall bias will be to the downside over time). When it is time to go short (ie. VIX under 18) you can use a series of descending buy orders for short funds like DOG. To the downside you can risk up to 80 or even 90% of your risk capital because we are presently in a secular bear market. This strategy really only works in a secular bear market. And due to Fed interventions the signals can be delayed and can go to unusual extremes. For example the VIX dropped under 15 at one point earler this year. Such an extreme is unusual. But overall this strategy can work, but you must remain disciplined and check your emotions at the door.
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