TSX TrendWatch Weekly

Another dead cat bounce?  Who knows? The S&P/TSX Composite Index did manage an impressive +5.5% gain last week in spite of record-breaking volatility.

The S&P/TSX Venture Index continued to decline though… -3%.  Major US market indexes were pretty much in line with the S&P/TSX Composite Index with roughly 5% gains.

In case you haven’t noticed, volatility is through the roof. The current reading of 70.33 on the VIX is 240% higher than levels at the beginning of the year.

You can see the modest bounce in the chart above from the week-earlier record low. The reading is now 7%.  If you think you can make money buying stocks now with the odds 93% against you, good luck!  Be especially cautious of once prominent stocks that are now virtually worthless. For example, Quebecor World (IQW) rose over 30% last week… from 7 cents to 9 cents. A buying opportunity? Don’t even think about it! This was a $45 stock in 2002.  Think it’ll go there again? Dream on!

When the equity markets are working for us, we have lots to talk about in terms of sectors and individual stocks to keep an eye on.  When we’re sitting on the sidelines, like now, we continue to believe that the best solution is to learn, learn, learn… so that you’ll do that much better when the markets recover!  Look into strategies and methods you may not be familiar with, or read a book about how the experts have made their fortunes. (See recommendations in the Book Store section of the web site.)

Or, look for other markets that might yield profits while equities continue to decline.  For instance, we’ve increased our exposure to the foreign currency (forex) markets with increasing success.

And, yet another possibility is to approach the global financial arena as if it were a casino!

Fixed odds financial trading lets you do just that.  We’re not recommending it as a mainstream investment option… just something to do with some of your fun money. Think of it the same way that you would if you were getting into a weekly sports pool, heading to the horse races, or playing a little poker with friends. If nothing else, it has entertainment value, and you don’t need to leave the comfort of your home.

Personally, I’m ignorant about sports, have never even broke even at the track and I find poker boring. But I don’t mind giving some thought to whether, say, the S&P500 will be higher or lower by the end of the month (based on extrapolating my trend calculations), and placing a small wager.

The “fixed odds” bit means that you can customize your bet and receive immediate notification of what it will cost you, based on how much you want to win.

For instance, as I write this portion of the update on Sunday, October 19, I might want to see if I can win $100 if the S&P500 is lower than its current value of 940 at the end of the month (October 31). I simply key in the amount I want to win, the duration (12 days), the direction (up/down), and the level of the index, and I instantly know that this bet will cost me $65.83.  That’s obviously much more expensive than buying a lottery ticket, but when you think of it as a 52% profit in 12 days (if I’m right), it takes on quite a different perspective.

And, unlike the lottery ticket, where the odds of winning the big prize are lower than getting hit by lightning twice on a sunny day in two different locations, you can apply your existing investment methodology to make the odds work for you. Using the same hypothetical example, I might look at the trend and consistency numbers for the S&P500 and extrapolate that the index may actually be 4% lower by the end of the month. Using a more conservative figure of -3%, I might change the index level on the same bet to 910. Then, to win $100, I’d only need to put down $55.48. If I’m right, that would be an 80% profit in 12 days. Naturally, if I’m wrong, I lose 100%.  Such is the nature of gambling.

There are many other kinds of bets you can place, but my intent is simply to give you a sample of the concept.  There are many fixed odds financial trading web sites out there… most based in countries where it is legal to provide such services (like the UK).  You can set up an account quickly using a credit card. A very few countries (notably the US) have legal restrictions regarding individuals placing bets online. So, if you are a US citizen, look into whether these laws apply to fixed odds financial trading before signing up.

We have used http://BetonMarkets.com as our service of choice for many years now, but, admittedly, little research went into our selection. A Google search will provide many others.

We can’t emphasize enough, though, that fixed odds financial trading is for fun, not long-term investing. If you have any predisposition toward gambling addiction whatsoever, stay away!