Last night, US President Donald Trump ordered a missile attack on an air base of the Syrian army. Stock market investors reacted predictably: oil and gold prices surged, the dollar fell, stock futures dropped. Unless this attack will give rise to the Third World War, its effect on stock markets will not be permanent. It might take one or two days for prices of stocks, materials and currencies to normalize. This pattern demonstrates on a micro-level how stock investors’ sentiment works. It is exaggeration that works both ways: initially a fear response and after that sluggishness. Both are irrational, but fully human. The same patterns can be observed at different levels: they can be recognized over a time span of weeks, months, and years. It is those natural patterns which underly the price movements at stock markets on which our models are based.
Wall Street’s major indexes closed slightly higher on Thursday. They finished well off session highs as investors were nervous about upcoming talks between the Presidents of China and the US. The S&P 500 added 0.19%, the Dow 0.07% and the NASDAQ 0.25%. Volatility eased to some extent: the VIX closed almost 4% lower. UVXY ETFs lost also almost 4%, while XIV ETNs added 1.70%.
Danny Daredevil lost half of the gains he made the day before: his RSS lowered to 373%. He is still in the green for the second quarter: 0.80%. Adventurous Anny is still holding cash. Her RSS remained at 22%. Solid Suzy and Lazy Larry posted a gain and their RSS is at 8%. They are still negative for the quarter, though: -1.0%.
It has been a month since we introduced the models which make up The Chapel Family. Starting today, we add the average annual returns for Adventurous Anny, Solid Suzy and Lazy Larry to the table below. We could have waited another week, month or even quarter, but we think it would be better to no longer withhold this information for you. However, be advised that AAR’s usually take more than a year to fully stabilize.
None of our models gave a trading signal at the end of yesterday’s session. Danny and Anny might be on the verge of a trading signal, depending on how markets react to the US missile attack.
RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return
René’s Reflections @ Friday: Your legs are between your ears
“Mister! Mister! Please help me!”
A young girl, about seven years of age, clearly in distress, as if her little world had just come tumbling down upon her, came running toward me.
“What’s wrong?” I asked.
“It’s my dog. She… she…” She burst into tears and couldn’t finish her sentence.
“What happened?” I tried.
“She broke, broke loose, now she keeps running away from me,” she said sobbingly. She was holding a leash in one hand, while pointing at her tiny Dandie Dinmont Terrier with the other. The dog was frantically running around on the lawn, near the street where cars were passing dangerously close. “Can you please catch her for me?”
“Sure. I’ll do my best.”
As I approached the dog, it not only started running faster, but also in the wrong direction: away from me, and toward the street where right at that moment a car was approaching with high speed. The best thing to do, I guessed, was to run as fast as I could, and to try to get ahead of the dog so it would have to walk around me in order to make it to the street. That worked. But several attempts to catch the dog ended in failure, as it moved back and forth much too quickly. It felt like catching a fly between two fingers would have been an easier task to fulfill. The girl also started running in the direction of the dog, causing it to behave in an even more unpredictable manner.
“Now you stand still. Don’t move as I try to catch it, okay? We’re making it nervous by running after it together,” I commanded her. She did as I said. I also stopped running. The dog stopped running as well. It sat down in the lawn and started sniffing at something in the grass. Time to try a different strategy. Slowly but surely I approached the dog in a wide arc, at the end of which I came from behind so it couldn’t see me coming. The girl was watching me as she stood there motionless like a statue. The desperate look in her eyes had made place for one of cautious hope. Before the dog noticed my presence, I grabbed it with both my hands in a sudden, swift movement, and handed it over to the girl. Visibly relieved, she leashed it, thanked me and walked away.
It’s a lesson we all get to learn one day: your legs may be longer, but that doesn’t mean you are faster. The fastest legs are between your ears…