What to Read Next.
We give you the tools and information to help you make your own investment. Get instant access to a free live streaming chart of the FTSE VIX. The chart is intuitive yet powerful, offering users multiple chart types including candlesticks, area, lines, bars and Heikin Ashi.
The good news is that we have seen this scary movie many times in the past, and we have lived to tell the tale. While Halloween has definitely worried many investors, history tells us that previous tricks may turn into holiday treats! This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter November 1, Please read disclosure language on IC Contact page.
November 1, at 3: Although markets may be efficient in the long-run see Crisis Black Eye , in the short-run, financial markets are hostage to fear and greed, and these emotions have been on full display.
With fresh fears over Russian intervention-collusion, global monetary policy uncertainty, and political risk in North Korea, investors are grasping for clues as they read the indicator tea leaves to better position their portfolios. Some of these contrarian sentiment indicators can be helpful to your portfolio, if used properly. However, in large part, interpreting many of the sentiment indicators is as useful as reading tea leaves for your winning lotto number picks. The premise behind contrarian investing is fairly simple — if you follow the herd, you will be led to the slaughterhouse.
There is a tendency for investors to succumb to short-termism and act on their emotions rather than reason. The pendulum of investment emotions continually swings back and forth between fear and greed, and many of these indicators are designed with the goal of capturing emotion extremes.
The concept of mass hysteria is nothing new. Out of sympathy for your eyeballs, I will not conduct an in-depth review of all the contrarian indicators, but here is brief sampling:. A different survey, conducted by Investors Intelligence, called the Advisors Sentiment Index, surveys authors of various stock advice newsletters. These data can provide some insights, but as you can probably gather, these surveys are also very subjective and often conflicting.
This is a widely used ratio that measures the trading volume of bearish put options to bullish call options and is used to gauge the overall mood of the market. When investors are fearful and believe prices will go lower, the ratio of puts to calls escalates.
At historically high levels see chart below , this ratio usually indicates a bottoming process in the market. Put simply, when fear is high, the price of insurance catapults upwards and the VIX moves higher. The higher the amount of shares shorted, the larger the pent-up demand to buy shares becomes in the future. The direction of investment dollars flowing in and out of mutual funds can provide some perspective on the psychology of the masses.
Given the bloodletting of the financial crisis, investors skepticism has made stocks about as popular as the approval ratings of Congress.
When it comes to sentiment indicators, I believe actions speak much louder than words. To the extent I actually do track some of these indicators, I pay much less attention to those indicators based on opinions, surveys, and technical analysis data see Astrology or Lob Wedge. Most of my concentration is centered on those indicators explaining actual measurable investor behavior i. As we know from filtering through the avalanche of daily news data, the world can obviously can be a scary place see Head Fakes Surprise.
If, however, you are looking to sharpen the returns on your portfolio and are thirsty for some emotional answers, pour yourself a cup of tea and pore over some sentiment indicators. July 24, at There are many ways to make money in the financial markets, but if this was such an easy endeavor, then everybody would be trading while drinking umbrella drinks on their private islands.
I mean with all the bright blinking lights, talking baby day traders , and software bells and whistles, how difficult could it actually be? Unfortunately, financial markets have a way of driving grown men and women to tears, usually when confidence is at or near a peak. The best investors leave their emotions at the door and follow a systematic disciplined process.
If investing is so tough, then what is the recipe for investment success? Universally loved stocks may enjoy the inertia of upward momentum, but when the music stops for the Wall Street darlings, investors rarely can hit the escape button fast enough.
Cutting corners and taking short-cuts may work in the short-run, but usually ends badly. Real profits are made through unique insights that have not been fully discovered by market participants, or in other words, distancing oneself from the herd. Typically this means investing in reasonably priced companies with significant growth prospects, or cheap out-of-favor investments. Like dieting, this is easy to understand, but difficult to execute. Pulling the trigger on unanimously hated investments or purchasing seemingly expensive growth stocks requires a lot of blood, sweat, and tears.
Investing in stocks is difficult enough with equity fund flows hemorrhaging out of investor accounts like the asset class is going out of style. Globalization, which has been accelerated by technology, has only increased correlations between domestic market and international markets. The equity investing game may be more difficult today, but investing for retirement has never been more important. Stuffing money under the mattress in Treasuries, money market accounts, CDs, or other conservative investments may feel good in the short run, but will likely not cover inflation associated with rising fuel, food, healthcare, and leisure costs.
Regardless of your investment strategy, if your goal is to earn excess returns, you may want to check the moistness of your armpits — successful long-term investing requires a lot of sweat. October 16, at 5: Investors reacted like the sky was falling on Friday. Commentators mostly blamed the point decline in the Dow on heightened probabilities for a September rate hike by Janet Yellen and her fellow Federal Reserve colleagues.
Geopolitical concerns over a crazy dictator in North Korea with nuclear weapons were identified as contributing factors to frazzled nerves. During the last rate hike cycle from mid to mid, guess how many times the Fed raised rates? So far this cycle, Yellen and the Fed have raised interest rates one time, and the one and only hike was the first increase in a decade. Given all this data, does it really make sense to run in a panic to a bunker or cave? Whether the Fed increases rates by 0.
If we look at the current situation from a slightly different angle, you can quickly realize that making critical investment decisions based on short-term Federal Reserve actions would be foolish. The same response should hold true for stocks as well. Many people like to speculate or trade stocks like they are gambling in Las Vegas. One day, when the market is up, they buy. And the other day, when the market is down, they sell. They rationally buy with the intention of owning for years.
The common sense test can also shed some light on the subject. If short-term trading, based on the temperature of headlines, was indeed a lucrative strategy, then the wealthiest traders in the world would be littered all over the Forbes list. There are many reasons that is not the case.
We saw similar volatility occur last August and during January and June of this year. At the same time, there is no need to purchase a helmet and run to a bunker…the sky is not falling. Invest with a Telescope…Not a Microscope. Sidoxia Capital Management SCM and some of its clients hold positions in certain exchange traded funds ETFs , but at the time of publishing had no direct position in any other security referenced in this article.
September 10, at Could we finally be out of the woods, or will geopolitics and economic factors scare investors through Halloween and year-end? Given recent catapulting stock prices, investor amnesia has erased the shear horror experienced over the last few months — this is nothing new for emotional stock market participants.
Today the urge is to flee scary geopolitical and economic headlines. Has anything really changed over the last few weeks? The exchanges were closed for a week and when they did open, the volatility shorts actually made money on the open before the VIX was allowed to spike. The point is regulators simply will not allow a catastrophic event to bankrupt majority of market participants.
After a few weeks in operation, volatility investors got very excited about the weeklies because finally there was product out there that closely followed the spot VIX. VX31 means that the contract expired on the 31 st Wednesday that year. As such you will see gaps in the weekly notations. There are usually 5 weekly contracts active at any given time.
You can view the active weekly contracts on the vixcentral. Since the VIX Weekly Futures are relatively new they have been around for less than a year , liquidity is not abundant.
However, they have been a relative success compared to other CBOE products targeted at other asset classes such as Oil and Gold. Compare this with the 22, daily contract average for the monthly futures. The stated goal for the ETFs in the fact sheet is:. In other words, there is no clear cut formula that is made available in the prospectus. However, the obvious goal would be to reduce the time to expiration as much as possible and do so in a systematic matter.
Based on these synthetic futures, if they achieve Beta of 0. If they are not able to find liquidity in the weeklies, I assume they will have to find liquidity in the nearest monthly VIX future which is a very liquid contract, but depending on the time to expiration that may hurt the beta and correlation a little bit.
You can monitor that website to see what actually is transpiring in these ETFs. There is contango present in the weekly contracts but not nearly as pronounced as in the monthly contracts. However, they are not organized as investment partnerships and as such will not issue a K-1 the way SVXY does. They have everything a volatility investor could possibly want. But it appears, that the leverage facility would be used for cash management purposes only to facilitate investor redemptions and not for the actual holdings of the fund.
Given that the time to expiration is dramatically reduced, it was a bit of concern whether we could have a bankruptcy situation with VMIN. Since VMIN aims to achieve Why pick up pennies in front of steamroller when you can collect dollar bills raining from the sky after the storm. They are well designed and well implemented and they will allow day traders to capture most of the daily fluctuations of the VIX without the use of leverage.
Hedging directly in the futures market is a headache due to the constant roll over work that has to be done, so even large professional investors like George Soros and other hedge funds would gladly utilize a more efficient way via an ETF. For those who want to jump right in, you have to be aware of the low liquidity in the VIX Weekly Futures market today. As it stands right now, proceed with caution.
You are commenting using your WordPress. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. What do these numbers mean?
The same response should hold true for stocks as well. Whether the Fed increases rates by 0.
The green arrows highlight four buy signals from late July to late September