5 Huge Trades for a Volatile 2013
>>5 "Magic Formula" Stocks for 2013
Even though the S&P 500 has already clocked 1.5% gains since Monday's open (and that's after yesterday's 76 basis point haircut), market volatility is extremely low right now. In fact, this entire second half of 2012 has come with exceptionally low volatility for stocks. But that's about to change.
Volatility is cyclical, which means that markets transition from extremely high volatility to extremely low volatility -- and back again. Pull up a chart of the VIX Volatility Index, and you can see that everyone's favorite volatility meter has spiked every 12 to 14 months. The last time we saw a spike was back in mid-2011 -- that means we're overdue for another period of high volatility in the new year.
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But that's not a bad thing. In fact, the last spike in the index lines up perfectly with the stock rally that started late last year. When you think volatility, don't think "fear", think magnitude. I've made it no secret that I think we're in store for more upside in stocks from here -- so an uptick in volatility could add some serious buying fuel to that fire.
(It's true that the VIX does have some directional bias, but that's less important for this discussion. For more on the VIX, take a look at How to Trade the VIX.)
With positive volatility looking likely to come into stocks after the quiet Christmas week, investors would be wise to start positioning themselves with attractive trading setups right now. That's why we're taking a technical look at five big names that are tradable this week.
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.