FORECAST:
Choppy to lower prices ahead.
1. Low readings on VIX imply that investors are complacent. A spike in VIX up 5 points would create a tradable bottom for 3-5 days.
2. Crude Oil is at the high end of its historical range and it has a lagged, negative effect on the overall stock market.
3. The long slide in metals, specifically silver, shows that investors have thrown away their silver together with their bonds. After stocks outperform relative to metals, it is wise to expect a different tune for at least a month or two.
4. Earnings yields are at their lowest levels in 20 years relative to 12-month trailing returns on assets in the S&P500. The median return on the S&P500 is roughly a 3.5% return on assets. That is not worth taking the risk of a 20%-40% decline the value of your holdings in order to return 3.5%. More on this in later updates.
I wish I could tighten the stop closer, but using roughly 3 average daily trading ranges is about as tight as I am comfortable with. If we see a spike up in VIX of 5 points, I would recommend cutting the short position and re-positioning on a bounce.
Tim 2:15 PM EST, Wednesday, August 14, 2013
Choppy to lower prices ahead.
1. Low readings on VIX imply that investors are complacent. A spike in VIX up 5 points would create a tradable bottom for 3-5 days.
2. Crude Oil is at the high end of its historical range and it has a lagged, negative effect on the overall stock market.
3. The long slide in metals, specifically silver, shows that investors have thrown away their silver together with their bonds. After stocks outperform relative to metals, it is wise to expect a different tune for at least a month or two.
4. Earnings yields are at their lowest levels in 20 years relative to 12-month trailing returns on assets in the S&P500. The median return on the S&P500 is roughly a 3.5% return on assets. That is not worth taking the risk of a 20%-40% decline the value of your holdings in order to return 3.5%. More on this in later updates.
I wish I could tighten the stop closer, but using roughly 3 average daily trading ranges is about as tight as I am comfortable with. If we see a spike up in VIX of 5 points, I would recommend cutting the short position and re-positioning on a bounce.
Tim 2:15 PM EST, Wednesday, August 14, 2013
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