Facebook Twitter Gplus YouTube E-mail RSS
magnify
Home Posts tagged "vxz"
formats

Softening Hedge and Rebalancing

With the sell off this morning I’m taking the opportunity provided by a spike in volatility to take some profit from the hedge and soften it in the Long / Short Hedged portfolio. I’m taking all profit from the hedge and buying new long positions with it. In addition, I’m selling 1/3 of the aggressive hedge (mid term put options, VXZ, or XVZ) and buying a short of the S&P 500 Index (or using SH). Usually, the longs in the portfolio have dropped enough that the new allocations are fairly close to a 50% long and 50% hedged position after a rebalance. But due to the large increase in volatility without much price damage in the market since 8/21/15 (when my market risk indicator signaled) the new allocations have a slightly smaller hedge than is normal after a rebalance. The new allocations for the Long / Short portfolio are as follows. 53% Long stocks that I believe will outperform in an uptrend (high beta stocks) 15% Short the S&P 500

Read More…

 
Tags: , , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
3 Comments  comments 
formats

Volatility Begets Volatility

150828vix

Many people have the mistaken idea that high volatility (VIX) means falling markets. They’ve been trained by financial news outlets to associate volatility with fear. This notion is only half right. Volatility is also connected to greed. In reality, volatility is a reflection of the size of a price movement regardless of the direction. Take a look at the chart below and you’ll see that during the late 1990s price was rising, but in wide daily ranges. This caused VIX to rise substantially while the market was going up. VIX went up from about 10 to 27 (170%) while the S&P 500 index (SPX) almost doubled from late 1995 to just before the Russian financial crisis of 1998. So without much “fear” in the market VIX nearly tripled. After the Russian financial crisis VIX stayed elevated in a range between roughly 19 and 30 as SPX climbed 38%. Large range days while the market was rising created an elevated VIX. SIDE NOTE: I’m using VIX to show the price move

Read More…

 
Tags: , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Still Aggressively Hedged

150828MarketHealth

Just a quick note about the portfolio allocations and the current market health indicator readings. All of my core health indicator categories rose this week, but they’re still mired in negative territory. In addition, my market risk indicator is still signaling. As a result, the core portfolios remain aggressively hedged with an instrument that benefits from higher volatility (mid term put options, mid term volatility — VXZ, dynamic volatility — XVZ, etc.). I’ll do an in depth post with my thoughts on the market later today that will highlight VXZ. Here’s a preview chart. Notice that the S&P 500 Index (SPX) has retraced it’s decline from last Friday’s close, but VXZ is still up 15% from Friday’s close. Volatility begets volatility…which is why mid term volatility makes a good hedge during fast moving markets.

 
Tags: ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Market Risk Warning

150821MarketHealth

My market risk indicator is warning today. That changes the portfolio allocations of the Long / Short portfolio and the Volatility Hedged portfolio to 50% long high beta stocks and 50% aggressively hedged. An aggressive hedge is a vehicle that benefits from higher volatility such as put options, or volatility ETF/ETNs like VXZ or XVZ. Please note that XVZ is thinly traded so limit orders (and likely several small purchases) would be prudent. Use your own discretion in which product you use…and as always never buy a product you don’t understand. If you’re using put options our portfolio allocations indicate that you should fully cover your portfolio at or near the money. Use your own discretion in term structure, but be aware that I look to mid term (4 to 7 months) puts first. If you’re uncomfortable with volatility or put options an actively managed bear fund like HDGE is a short option to use as a hedge. It will likely offer more protection than a simple short of the

Read More…

 
Tags: , , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Still Healthy Intermediate Term

150508spxSR

Last week I mentioned that my intermediate term indicators strengthened while some short term indicators that I follow were showing weakness. This week I’m seeing the short term indicators right themselves and the intermediate term indicators continue to strengthen. This increases the odds that the market will finally break out of the current range to the upside. Of course, price is truth so 2120 on the S&P 500 index must be decisively broken to the upside (along with the current Dow Theory line breakouts) for confirmation that the next intermediate term trend is underway. One positive indicator comes from support and resistance levels generated from the Twitter stream. Traders are now tweeting higher price targets which indicates they’re putting on bullish trades. Another positive sign this week is NYSE new highs are rising and new lows are falling as the market gets close to new all time highs. We still want to see new highs break its recent down trend for confirmation that investors are willing to buy shares that

Read More…

 
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Risk Rising

150114sh

Once again our core measures of risk are negative. They’ve been there all week long. I suspect that it will take a close above 2050 on the S&P 500 Index (SPX) by Friday to get the category positive. That’s about the point where SPX has been when the risk measures flip. If they are negative on Friday the Long / Cash portfolios will go 100% to cash. The hedged (Long / Short) portfolio will be 50% long high beta stocks and 50% short SPX. Our market risk indicator has three of four components warning at the moment. The fourth component continues to slowly fall, but hasn’t gone negative yet. The volatility hedge is still 100% long and will stay that way unless the fourth component falls by the end of the week. One thing I’m seeing is a lot of mixed signals…I’ll post more about them on Friday, but here are a few examples. NYAD advance / declines are acting well, but the percent of stocks above their 200 day

Read More…

 
Tags: , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Risk Off

141105JNKvLQD

The last dip in the market caused some damage to the psyche of market participants. So much so that they are exhibiting signs of reducing risk in a variety of ways. Here are three examples. First is high quality bonds (LQD) against junk bonds (JNK). The damage done to junk bonds in July and October isn’t being repaired. People are shying away from junk. Which means they’re starting to get worried about cash flow and the ability to repay debt by middling companies. I’d like to see JNK start to mirror LQD again to give an all clear signal. Next is high beta stocks (SPHB) against low volatility stocks (SPLV). The October sell off did a lot of damage to high beta stocks that was largely recovered, but low volatility stocks held up and have sped to higher highs. This indicates some rotation to safety during the last rally. A move to higher highs by SPHB will be the first step in repairing this relationship. Another indication of reduction of

Read More…

 
Tags: , , , , , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Softening Hedge

141024allocations

Our Market Risk Indicator cleared its warning this week. However, our core measures of market health are still mired in negative territory. As a result, we’ll be softening the hedge in the hedged portfolio and staying 100% in cash in the long/cash portfolios. To soften the hedge we’re removing put options and/or volatility products. For the model portfolio we’re selling ETFs or ETNs like VXZ, VIXM, or XVZ and replacing it with at short of the S&P 500 Index (you can use the symbol SH). The end result is a portfolio that is roughly 50% long stocks we believe will outperform in an uptrend (high beta stocks are likely candidates for the hedged portfolio) and 50% short the S&P 500 Index. Below is a chart with the changes in our portfolio allocations over the past year. Green lines represent adding exposure, yellow lines are reducing exposure (and adding SH as a hedge), red lines are market risk signals where the hedged portfolio uses instruments that benefit from increasing volatility as

Read More…

 
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Another Heads Up

140924hdgeVvxz

Our measures of trend have been bouncing back and forth across the zero line this week and are currently negative. If they are still negative on Friday we’ll be raising more cash and/or adding a larger hedge before the week ends. Here are some of the things I’m watching at the moment. The actively managed short ETF HDGE is currently rising even though a simple short of the S&P 500 Index (SH) is trending lower. This indicates that shorting selected stocks is starting to work. This often happens before the general market falls. In addition, mid term volatility (VXZ) is rising as well. This indicates that investors are getting nervous going into the end of the year. Small cap stocks (IWM) broke below the triangle I’ve been watching with an associated break in momentum from traders on Twitter. The negative gap in breadth between small and large cap stocks continues to grow. While everyone is watching small cap stocks I’m seeing deterioration in large caps under the cover of new

Read More…

 
Tags: , , , , , , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments 
formats

Market Update

Published on July 31, 2014 by in Market Comments
140731spx2

Today didn’t do much damage to our core indicators, however, two of the four components of our Market Risk Indicator are warning. A third component is very close to warning and it won’t take much to trigger it. The fourth component is further away and will take a sharp down day like today to make it warn. I just wanted to give you warning that there may be changes to the core portfolios tomorrow (Friday). I’ll update the site and post to Twitter and StockTwits by 3 PM Eastern what our allocations will be going into the close. IF the risk indicator signals the hedged portfolio will go 50% long and use the other 50% to hedge with a mid term or dynamic volatility instrument like (VXZ, XVZ, or VIXM). If you don’t like volatility ETFs then a managed short fund like HDGE is an alternative. For those of you who use put options the strategy would be to stay 100% long, but cover your complete portfolio with intermediate term

Read More…

 
Tags: , , , ,
 Share on Facebook Share on Twitter Share on Reddit Share on LinkedIn
No Comments  comments