The overarching thematic of this investment landscape is conflict. We are in the early stages of a US-led global trade war, so it is key to stay sharp on where the action is.
Thanks for another insightful and educational report. The Savvy Yabby has introduced a fascinating new perspective to my investing universe.
I have been selling down some of my portfolio holdings into current strength taking your view that this rally is a "gift".
However, there is some cold water sloshing around my feet after seeing research (from Shaw and Partners) showing that over the last 38 times the VIX has been above 60 (as it was on April 7th), the market has been positive 100% of the time in the following 12 months, with returns, on average, greater than 38%. (range 14.7% up to 79.2%).
We can never know the future for sure, so it is important that I give a nuanced answer. Firstly, the bear call I made is related to my method of identifying when there is a shift from positive sentiment conditions to negative sentiment. There are occasions when this is only a temporary phenomenon. There are others were a drawdown of 40% from that cost basis level is possible. The normal average profit buffer is about +20% in a bull. There is a two to one risk reward ratio on that metric when you hit cost basis. You mention VIX and that is certainly a good short-term indicator of when risk appetite is rising or abating. There is always money on the street which is available to go short volatility and profit from that recovery. This is why the "strength" I spoke about can continue for some time. Secondly, what matters more to the continuation of a bear market is not any of the technical factors I mentioned (including the SYI which is just a technical indicator), but the fundamentals. The tell for a major move down is missed earnings estimates, followed by big downgrades. We are in the midst of the calendar Q1 reporting season. This will be watched closely, Beats will be rewarded, and this market will likely want to rally. However, I think that the main risk will not surface until calendar Q2 namely July and August. That is when the tariff effects will show up. Conclusion: I think this bear rally is a gift, but I would be patient in assessing the depth of the bear market. If Trump succeeds in strong-arming Fed chair Powell into a rate rut the market will bounce hard and higher. Tactically I would NOT be short this market. However, there is high risk in my view. That is why I am selling into strength, especially where the positions are vulnerable to fall. One needs to be moderate in action and really focused on trimming or exiting the riskier positions. Raising some cash is a good idea, going to all cash is a bad idea. There is a happy medium, and that depends on personal risk appetite, need for cashflow, and tax considerations. I cannot answer those. Personally, I am at around 30% cash, because I have medical expenses to meet, and other business to fund. The number will differ for everybody. You will know it is right when you sleep well and stop looking at the market. Good luck and great question. I will do some quant on VIC and Yabby taken together. That will take a while, but it is a great suggestion.
Thanks for another insightful and educational report. The Savvy Yabby has introduced a fascinating new perspective to my investing universe.
I have been selling down some of my portfolio holdings into current strength taking your view that this rally is a "gift".
However, there is some cold water sloshing around my feet after seeing research (from Shaw and Partners) showing that over the last 38 times the VIX has been above 60 (as it was on April 7th), the market has been positive 100% of the time in the following 12 months, with returns, on average, greater than 38%. (range 14.7% up to 79.2%).
Is the water still warm where you are?
David
We can never know the future for sure, so it is important that I give a nuanced answer. Firstly, the bear call I made is related to my method of identifying when there is a shift from positive sentiment conditions to negative sentiment. There are occasions when this is only a temporary phenomenon. There are others were a drawdown of 40% from that cost basis level is possible. The normal average profit buffer is about +20% in a bull. There is a two to one risk reward ratio on that metric when you hit cost basis. You mention VIX and that is certainly a good short-term indicator of when risk appetite is rising or abating. There is always money on the street which is available to go short volatility and profit from that recovery. This is why the "strength" I spoke about can continue for some time. Secondly, what matters more to the continuation of a bear market is not any of the technical factors I mentioned (including the SYI which is just a technical indicator), but the fundamentals. The tell for a major move down is missed earnings estimates, followed by big downgrades. We are in the midst of the calendar Q1 reporting season. This will be watched closely, Beats will be rewarded, and this market will likely want to rally. However, I think that the main risk will not surface until calendar Q2 namely July and August. That is when the tariff effects will show up. Conclusion: I think this bear rally is a gift, but I would be patient in assessing the depth of the bear market. If Trump succeeds in strong-arming Fed chair Powell into a rate rut the market will bounce hard and higher. Tactically I would NOT be short this market. However, there is high risk in my view. That is why I am selling into strength, especially where the positions are vulnerable to fall. One needs to be moderate in action and really focused on trimming or exiting the riskier positions. Raising some cash is a good idea, going to all cash is a bad idea. There is a happy medium, and that depends on personal risk appetite, need for cashflow, and tax considerations. I cannot answer those. Personally, I am at around 30% cash, because I have medical expenses to meet, and other business to fund. The number will differ for everybody. You will know it is right when you sleep well and stop looking at the market. Good luck and great question. I will do some quant on VIC and Yabby taken together. That will take a while, but it is a great suggestion.