2011 Year End Summary for Stock Indexes

The Performance chart below gives you an excellent picture of where the indexes ended 2011. We started the year with the normal bravado that the Holidays seem to bring and then reality caught up to most investors by the end of April. We ended the year with majority of the indexes losing money. This picture points the way forward as well. It shows you that you have to, unfortunately, watch your money much closer than in the past. Its likely you will have to be in and out of the market a couple of times a year if you want to take advantage of the wild swings in volatility that are going to be a part of the markets for some time to come.

The following charts on the VIX (volatility index) show you how you can use the index to help time your investments. The first chart shows the VIX as a 10 period (weekly in this case) moving average overlay-ed on an area chart of the SP500 index. As you can see the index does a good job of timing the tops and bottoms. As the index approaches the 20 level you need to start preparing for a top. The index has an inverse relationship with the market. A lack of fear signals a top and excessive fear infers a bottom is likely about to form.

This last chart from readtheticker.com uses their proprietary cycle studies to forecast likely outcomes in the future. It suggests the early days of 2012 should see a rising VIX which means a falling stock market.

Hopefully you can prepare for the coming ups and downs by using simple charting methods and slightly longer time intervals.  Get ready as 2012 could be a wild ride.

Happy New Year to All