7 July 2017: A change of mood?

It looks like a change of mood has taken a hold on stock market investors. It is a combination of factors that has turned the sentiment of the markets: the self-fulfilling prophecy of lower stock prices after a long period of increase, disappointing data on consumer confidence, the inability of Donald Trump to achieve political results, geopolitical issues, the likelihood of a change in monetary policies by central banks, etc. The main question is: are investors taking a breather or are we entering a longer period of decline? After the gains that have been made during the first part of the year, investors may be tempted to take some money off the table. Under these circumstances, stocks will have a hard time to make substantial gains. The summer will be a period of stabilization or worse.

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US stocks closed lower Thursday. It is a combination of geopolitical jitters and growing signs that central banks will tighten monetary policies that is frightening stock markets investors. The S&P 500 dropped 0.94%, the NASDAQ fell 1.00% and the Dow closed 0.74% lower. Volatility shot up, especially at the end of the trading session. The VIX closed 13% higher. UVXY ETFs profited and closed almost 10% higher. XIV ETNs followed the opposite pattern and lost almost 5%. All of our models suffered losses.
Danny Daredevil‘s RSS dropped to 308%. Danny is now barely positive for 2017: +1.3%. Adventurous Anny saw her RSS drop to 30%. The return since their start for Solid Suzy and Lazy Larry closed at 17%.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

308.33%

1.29%

-6.19%

153%

Adventurous Anny Cash 6 March 2017

30.06%

30.06%

-6.19%

118%

Solid Suzy XIV 6 March 2017

17.41%

17.41%

-6.19%

61%

Lazy Larry
XIV 6 March 2017

17.41%

17.41%

-6.19%

61%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

Two of our models gave a trading signal at the end of yesterday’s session: Danny Daredevil and Adventurous Anny. Danny switched from XIV ETNs to UVXY ETFs and Anny traded her XIV ETNs for cash at the opening of today’s session.

 

 

RS_v05-smallRené’s Reflections @ Friday: Keep distance

Hungarian war photographer and photo journalist Robert Capa once said, “If your pictures aren’t good enough, you’re not close enough.” What he meant was that we should physically get closer to our subject, in order to become more involved with it. By doing so, the quality of our photos would improve dramatically.
I found that in investing, this works in the opposite way. We may have chosen a strategy that works for us, and we decided to stick to it. Yet, both in times of ugly drawbacks, as well as above-average increases of the value of our portfolio, we are time and again confronted with our instinctive behavioral biases. We tend to totally forget the overall picture, and get hung up in today’s (and yesterday’s) price movements. If you find yourself caught by these biases, then remember that ‘you’re too close to the subject’. Try to keep more distance between you and the daily fluctuations in the stock market. Then you will not only decrease the likelihood of letting your human emotions interfere with the investment process, but also have a much better peace of mind.
Brad Sherman, President of Sherman Wealth Management, wrote an excellent article on Investopedia on this matter, “8 Common Biases That Impact Investment Decisions”. My recommended read for the weekend.