|11-19-2011, 02:07 PM||#1|
Join Date: Nov 2011
Location: New York City
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How to profit from European trouble
Please do not misinterpret the intent of this article. Everything I just explained may lead you to think the current market is too dangerous to invest in and should be left alone. On the contrary, there are 2 very profitable opportunities available and I will discuss them below.
1. Watching the VIX (Volatility Index)
The VIX (Volatility Index) is a beautiful way to track the way investors are feeling about Europe. Often referred to as the Fear Index, the VIX goes up when people sell large amounts of stock, and down when people purchase large amounts of stock. Whenever the VIX breaks 36, there is a large rally the next day. This is true roughly 99 out of 100 times. 36 is fundamentally a level that is unsustainable by investors unless Europe actually does default (extremely unlikely). A good amount of profit can be generated by simply buying a few stable stocks, such as General Electric, Exxon-Mobil, Halliburton, Berkshire Hathaway, etc., and selling them at the end of the next day.
2. Buying stock in the U.S. banks
The few stocks that are actually guaranteed value buys are the large U.S. banks. Many of them have fallen to low prices that are based on nothing but rumor and paranoia. Many believe that if Europe defaults, the U.S. banks would suffer because of their exposure to sovereign debt. In actuality, the exposure that U.S. banks have to sovereign debt is extremely small and would not greatly affect their equity holdings. On top of that, their earnings are completely healthy, and their P/E ratios are lower than they have been in decades. Buying a large diversity of U.S. banks such as J.P. Morgan-Chase, Goldman Sachs, Bank of America, Wells Fargo, and Morgan Stanley will definitely yield extremely high returns for the next two years or so.
The two profitable opportunities mentioned above are some of the only methods that can work consistently in the current market storm. Between following the VIX and investing in underpriced banks, any investor can continue to grow their wealth in a healthy manner.
More analysis at stockranger.blogspot.com
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