26 December 2017: Can a bull grow a beard?

The markets are entering uncharted waters. In a couple of months, the current bull market may ‘celebrate’ its ninth anniversary, gaining about 300 percent along the way (since its inception). At the time of this writing, it is already the second oldest bull market on record without a decline of 20% or more. Such a decline (a.k.a. a bear market) occurred 32 times between 1900 and 2015, averaging one every 3.5 years (source: Investopedia). Is a bear market overdue? Or is ‘something else’ going on?
As the late great Sir John Templeton once said: “Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria”. Could it be different this time? Can a bull grow a beard?
According to These Dutch Guys, everything in life goes around in cycles, and there’s no escape from this law of nature. The mere fact that we humans have great difficulties grasping the concept of cycles — especially when it comes to finance — forces us to believe that it will always be like this, that this time it’s different. Or that this must be the new normal. Our inability to acknowledge the nature of cycles and the fact that we are part of that nature, distorts our reality. And because of that, reality bites sometimes.

white-chapel-logo-smallAll three major US indices slipped on Friday as investors were winding down ahead of the Christmas holiday. During thin pre-holiday trading, the markets struggled to sustain momentum. All major indices closed in the red: the S&P 500 lost 0.05%, the NASDAQ 0.08%, and the Dow 0.11%. Still, the results for the week were positive though: +2.8% for the S&P 500, +3.4% for the NASDAQ, and +4.2% for the Dow. It was another non-volatile week: the VIX stayed in a bandwidth between 9.2 and just over 10, and closed the week in single digit territory again at 9.90 — 5% higher than the week before. On Friday, the VIX gained almost 3%, which was beneficial for UVXY ETFs. They profited (slightly) by gaining 0.90%. XIV ETNs made a small step back, losing 0.60% that day.
Danny Daredevil, who saw his RSS turn negative after Thursday’s trading, could breathe a sigh of relief on Friday. His RSS closed in the black again, at +0.5%. Adventurous Anny is holding cash. Her RSS remained at 23%. Solid Suzy and Lazy Larry recorded a small loss. Their RSS was down one percentage point, to 103%.
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

0.49%

-75.07%

-27.87%

0%

Adventurous Anny Cash 6 March 2017

22.91%

22.91%

13.28%

29%

Solid Suzy XIV 6 March 2017

102.88%

102.88%

38.69%

142%

Lazy Larry
XIV 6 March 2017XIV

102.88%

102.88%

38.69%

142%

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

 

RS_v05-small

A fisherman at seashore.
Picture taken last Saturday at the beach of Monster, a small coastal town near The Hague.
Whether or not the fisherman caught anything that day, is unknown to René.
If anything, it might as well have been a cold.

Image of Doorstop Imp Bart Plush Cute Fabric Sweet Funny by Max Pixel [Public domain Creative Commons Zero – CC0 license]