9 January 2018: Extremely low volatility

At the end of last year, it looked like volatility was taking off. In the last trading week, the VIX rose from below 10 points to well above 11 points. Was this the prelude to a new year that would be more volatile than 2017 was? After five tradings days in 2018, we know that the answer is ‘no’. The VIX has closed each day of 2018 in the single digits and was two days close to ending the day below 9 points. Investors can’t get enough of this bull market. In an article on MarketWatch, another reason is put forward why volatility has been so low during the last 15 months or so: low correlations between stocks, sectors and countries. If correlations are high, volatility will also be higher. If, let’s say, energy stocks go down and tech stocks follow suit, markets will decline more strongly. Individual stocks, sectors and countries appear to be moving more independently, which is dampening swings in the markets. The question is, however, if this is an explanation for the lack of volatility or if these low correlations themselves are the result of something else. Due to low interest rates, there is no real alternative to stocks for investors. If investors move away from an individual stock, sector or country, it is very likely that they will rotate into another stock, sector or country instead of moving away from stocks altogether. If this is the underlying principle that is at work, we can expect volatility to remain low for at least two or three interest rate hikes.

white-chapel-logo-smallThe S&P 500 and the NASDAQ closed at records on Monday. Gains in energy and industrials helped the benchmarks finish in positive territory in the first five sessions of 2018. Investors are optimistic over a stronger economy and looming fiscal stimulus. The S&P 500 gained 0.17% and the NASDAQ rose 0.29%. The Dow could not record another gain and closed with a tiny loss (-0.05%). Volatility was on the rise, but the VIX is still at very low levels: 9.52 points (+3%). UVXY ETFs are still struggling with these low levels and lost almost 2.5%. XIV ETNs gained more than 1%.
Danny Daredevil is waiting for a change of momentum. His RSS dropped to -12%. Adventurous Anny is still holding a cash position. Her RSS remained unchanged at 23%. Solid Suzy and Lazy Larry are marching on: their RSS rose to 116%.
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

-12.40%

-14.10%

-14.10%

-6%

Adventurous Anny Cash 6 March 2017

22.91%

0.00%

0.00%

28%

Solid Suzy XIV 6 March 2017

116.05%

7.16%

7.16%

148%

Lazy Larry
XIV 6 March 2017

116.05%

7.16%

7.16%

148%

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

 

A one-minute strip generator production (VIII)

Is it that time again? Yes, it is: another one-minute strip generator production, powered by stripgenerator.com and inspired by a song heard on the radio between Christmas and New Year’s Eve.