24 July 2017: Volatility ahead?

As long as the markets keep hitting all-time highs, greed will triumph caution. And FoMO (Fear of Missing Out) will be too strong an emotion for many a (novice) investor to resist. So far, this bull on steroids seems to be wearing blinders. It managed to stay on course, largely unscathed by slow economic growth, rising (geo)political tensions and monetary policy shifts. Are the trees really growing to the sky, or will the markets come to their senses any time soon, either by themselves or by some unforeseen event (aka a Black Swan)? According to an article at MarketWatch published Saturday, volatility might rise again this week. Investors are uncertain about the overall health of the US economy in the light of the unconvincing quarterly earnings results published so far. In the article, Paul Nolte, portfolio manager at Kingsview Asset Management is quoted. According to him, earnings thus far are confirming less-than-stellar economic data recently, and loan activity is still not robust. He is expecting ‘an inevitable correction in the works’. He uses a pearl of a metaphor to point out the difficulty of timing it: “The market is like a balloon floating around looking for a pin.”

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A lack of economic data to focus on, as well as a subdued outlook from General Electric Co., weighed in on the markets Friday. All three major US indices stayed in the red on the final trading day of the week. The S&P 500 and the tech-heavy NASDAQ closed virtually flat for the day; both lost 0.04%. The Dow dropped 0.15%. For the week, the S&P 500 was up 0.5%, the NASDAQ gained 1.2% and the Dow lost 0.3%. Volatility eased even further Friday. The VIX closed 2.3% lower at 9.36 points, just short of an all-time low: only once (in December 1993) it closed even lower at 9.31. But it did break another record: never before it stayed in single-digit territory for seven consecutive trading days, which it did on Friday. UVXY ETFs suffered from this unprecedented lull in volatility: they lost another 2%. XIV ETNs profited on the other hand, closing 0.8% higher.
Danny Daredevil‘s return dropped further to an RSS of 194%. Cool and collected as he is though, used to ugly drawbacks every once in awhile, he patiently waits until volatility will pick up again. Adventurous Anny is still holding cash and her RSS remained at 33%. Solid Suzy and Lazy Larry rally on with their RSS now over 41%.
None of our models gave a trading signal at the end of Friday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

194.36%

-26.98%

-32.38%

100%

Adventurous Anny Cash 6 March 2017

32.57%

32.57%

-4.39%

111%

Solid Suzy XIV 6 March 2017

41.35%

41.35%

12.93%

150%

Lazy Larry
XIV 6 March 2017

41.35%

41.35%

12.93%

150%

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

 

RS_v05-smallIn the harbour of Breda, René’s home town, the annual event ‘Breda Drijft’ (Breda floats) was organized yesterday. Participants — the more the merrier — bring their own inflatable boats, a couple of DJs make the music, and floating bars take care of the beverage serving needs. The weather gods must have thought, “If Breda wants to float, we will make sure it floats!” Shortly after the BBC shot their item below, it started pouring like crazy.