MARKET
RECAP
Monday the S&P 500 finished
up a whisker, but basically flat at 1380 (rounded). VIX fell more than 10% Monday (and that’s a
lot) to 16.68.
VIX has been confounding
traders for a while and even more so today.
A falling VIX would ordinarily indicate a rising stock market.
I must note here that
maybe the VIX is correct and this “correction” will turn out to be a big fake
out. I don’t think so at this point, but
realistically, no system is right all the time.
Tyler Durden at ZEROHEDGE may have the answer.
IS VIX PRICING IN THE FISCAL CLIFF?
“Much is being made of the drop in VIX today - with some
suggesting it indicates confidence that investors believe the fiscal cliff
resolution is closer. This could not be further from the truth. Investors had
bought short-term VIX across the election and are unwinding that protection in
the November futures contract but at the same, they are actively bidding for
protection across the event-horizon of the fiscal cliff - out to Feb 2013. The options market is absolutely not
pricing in a fiscal cliff resolution and in fact is just
beginning to price in the expected rise in realized volatility as the market
becomes increasingly headline-sensitive once again.” Backup, Charts and more at…http://www.zerohedge.com/news/2012-11-12/vix-pricing-fiscal-cliff
NTSM
The
NTSM analysis switched back to SELL Monday.
Breadth, measured as the percentage
of stocks advancing, declined today.
New-highs, new-lows also declined.
As I noted in the last blog, market
internals are continuing to trend down and that indicates that more selling is
probably coming.
MY INVESTED POSITION
Based on the SELL signal,
7 November 2012, I moved out of the stock market. Because of the extreme negativity I have
noted from Hussman and others, I am currently invested in a range of near 15%
invested in stocks. I also took short
positions on the morning of the 8th that make me currently net short
the S&P 500. (I am using Guggenheim
(formerly RYDEX) funds and 2x Short ETF, SDS.
Those are dangerously volatile so I don’t recommend them unless you have
a BIG tolerance for risk. Also, if they
are held too long they may not perform well.
As
I have noted before, others may choose to keep more invested in stocks without
too much damage to their portfolio if the invested % is low. For example, if one were to keep 30% invested
in stocks and the market crashed by 50%, the loss to the portfolio would only
be 15%. If that is your plan, keep the
low-beta stocks (those with lower P/E ratios) such as utilities, consumer
staples, or value oriented mutual funds.
Sell technology. Keeping 30%
invested in stocks is actually a pretty good strategy since it hedges the bet
if I am wrong and the market continues up after a sell signal.
To
be clear I am not predicting a crash; but there seems to be a lot of risk now.
