E 2018 Market Volatility And Volatility Trading Update

For 2018, however, we do see the current median range of 15+ percent being exactly what we’ve expected to see and as Finom Group has written about in previous reports.

"Finom Group expects a median VIX reading of 15.70 for the VIX in 2018, +/- .50 percent. Review the table of Median daily VIX prices below." 

We also foresee future bouts of volatility in the coming months that will plunge the VIX below 11% and take it above 22%, even if ever so briefly. Our forecast expresses such wild swings due to what we’ve already telegraphed within this article and the unmentioned election cycle. Nonetheless, we continue to hold a core VXX position worth 16.5% of Golden Capital Portfolio holdings, hedged directly with cash holdings in excess of 40 percent.

2018 will prove to be an interesting and volatile year for the markets.  While bear market participants have fanned the flame or beaten the drum for a market crash to ensue throughout the first 6 months of the year, such an event is highly unlikely absent a black swan type variable being introduced to the market. Before I highlight one bear market promoted call from earlier this year, I want to also offer that markets following earnings.  This is inarguable as proven with a S&P 500 historic earnings chart layover with the S&P 500 itself.  As Larry Kudlow often says, "Earnings are the Mother's milk of markets".  In other words, as earnings go, markets follow over time. Now let's move on to that bear market call from earlier this year. Recall this nonsense!  I call it nonsense because it is just that, nonsense.

McClellan, publisher of the McClellan Market Report, said there could be a pause in the downtrend this week, as his market-timing signals point to a minor top due on Friday. But with his “price oscillator” turning lower following the Dow Jones Industrial Average’s 425-point drop, and the S&P 500 index’s 1.3% slide on Tuesday, he turned bearish for short- and intermediate-term trading styles. He has been bearish for long-term trading styles since Feb. 28.

“I have been looking for a big downturn in late April....We appear to have gotten that downturn now,” McClellan wrote in a note to clients. He said it is possible that the big down move pauses briefly in honor of the minor top signal due Friday, “but it should be a lasting and painful downtrend, heading down toward a bottom due in late August.”

“Turning down a Price Oscillator while it is still below zero conveys the promise of a lower closing low on the ensuing move,” McClellan wrote.

Since “promise” isn’t the same as a “guarantee,” he said the indication can get revoked if the Price Oscillator turns up right away. “I do not expect that outcome this time, but I acknowledge it is a possibility,” McClellan said. 

The call was made in the final week of April. Only a week after the famous McClellan Oscillator signaled a bear market that would find a bottom in August, the market began its uptrend.  Undoubtedly, coinciding with the heightened levels of market volatility and market declines from the February-April periods that were based on, well fear, Tom McClellan made an error in forecasting.  His forecast was not based solely on the McClellan Oscillator, but if you're unable to derive a more probable forecast on your own technical indicator then...you get my point!  The fundamental point I'm trying to example within the context of the erroneous call by Tom McClellan is that technical indicators can often be found with great error as they discount the value of earnings in the market.  Markets follow earnings over time. The market may have gyrations that cause fear and waning sentiment amongst investors, but over time the market will revert to the direction of earnings for better or for worse. Markets do not function to the contrary over time. 

 

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