21 September 2017: The great unwinding

Yesterday, Fed president Janet Yellen announced that the Federal Reserve will start unwinding its huge asset portfolio commencing in October. The reaction of stock markets was mixed. In the first 25 minutes after the announcement, all major indices dropped substantially. The VIX shot up and gained more than 7 percent. But in the next half hour, the pattern was reversed and indices saw themselves at exactly the same levels they were before the announcement. In the final hours of yesterday’s trading session, volatility eased even more and sank deeply into single-digit territory. A recovery of a shock or a sign that signals the beginning of the end? Will this not totally unexpected move by the Fed form a tipping point for the army of bears who think that the current bull market has been overdue for at least 18 months? Don’t be surprised if the remainder of September will be characterized by a solid loss of tranquility.

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US stock markets indices retreated Wednesday afternoon as the Federal Reserve announced that it would start reducing the size of its $4.5 trillion asset portfolio. Volatility increased substantially shortly after the announcement, but the VIX sank well below 10 points in the last hours of trading. The Dow was up 0.1% and the S&P 500 added 0.06%. The NASDAQ was in the red for the most part of the day and could not avoid a loss: -0.08%. UVXY ETFs recorded another small gain: +0.35%. XIV ETNs suffered a small loss: -0.25%.
Danny Daredevil made another small gain. His RSS stands at 33%. Adventurous Anny is still holding cash. Solid Suzy and Lazy Larry recorded a small loss. Their RSS is still above 40%, but only just.
None of our models gave a trading signal at the end of yesterday’s session.

Model  Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

33.39%

-66.91%

-69.36%

18%

Adventurous Anny Cash 6 March 2017

3.84%

3.84%

-25.11%

7%

Solid Suzy XIV 6 March 2017

40.01%

40.01%

11.86%

85%

Lazy Larry
XIV 6 March 2017

40.01%

40.01%

11.86%

85%

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

 

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Tomorrow, 22 September, is the day of the autumnal equinox. The days are getting shorter, the leaves start changing color and nature starts preparing for the cold season. Since a week or so, René has a new guest: a European garden spider, a.k.a. cross spider (Araneus diadematus). It has spun its web just in front of René’s Morning Glory plant and seems to be happily and calmly doing its thing over there. Every now and then, the web is damaged by the wind. In which case the spider either repairs or rebuilds it in less than no time. Yesterday evening, René caught a mosquito in the house which he then hand-fed to the spider, who devoured it enthusiastically. As long as the spider is his guest, René is happy with any mosquito, or other insect for that matter, he finds in his house. It is a cliché, but true nevertheless: happiness can be found in the smallest things.