Why I Will Try To Be as Serene as VIX

In recent days, two major economic events, the Fed meeting and the long- anticipated passage by Congress of tax legislation, have come and gone. It’s striking how quietly and unemotionally the markets have responded.

A useful way to look at this serenity is through VIX. This ratio measures market volatility and often is seen as a reflection of how much risk the market perceives. The ratio has remained ultra low and range bound throughout all the tax bill brouhaha.

On this score, if I had followed VIX’s stoic lead and reined in my own emotions, I would have stayed with my bond trade longer than I did. Clearly my exit was premature, and I apologize. Had I stayed with the position until my bond indicator turned clearly neutral, which is where it is now, the trade would have made money.

One way to ensure I don’t do that again is by always reporting on where my indicators are every time I enter or exit a trade, letting you know if the reading is bullish, bearish, or neutral. In the case of the bond indicator, I exited when the indicator was still in positive territory. The fault for the loss clearly lies with me, not with my indicators, which were blameless.

Our Open Position

Currently we have one open position, recommended last week: a call option on GDX, the gold stock ETF (GDX March 16, 2018 $22.50 call). Our gold indicator remains in positive territory so we are staying with the position. If anything the indicator has improved a touch since our last communication.

Another thing to report is continued improvement in our oil stock indicator, which has been neutral for about two weeks. We also note our SPY indicator remains neutral though hovering close to a negative signal. If it turned negative in the next week or so we would give careful consideration to a put. However, we’d have to take into account the time of year. January tends to be a good month for stocks, and we would need to give that some weight, since it’s difficult to integrate seasonal factors with the kind of daily volatility our indicators try to predict.

Not surprisingly, another indicator close to a positive signal is silver. If it improves just a bit more we’d have no hesitancy in recommending a silver call option.

We’ll leave off here. The holidays are at hand, and we wish all of you a happy holiday season. We’ll be continuing to work, though, and plan another update next week. This is a volatile game and holidays or no, the Asian markets aren’t taking a break, so we won’t either.

 

Stock Talk

Derek Myers

Derek: Las Vegas, NV

The market always has a way of teaching us lessons no matter how long we’ve been trading. All we can do is continue to learn and move on. Happy Holidays!

Derek

Scott Chan

Scott Chan

Happy Holidays to you as well Derek!

Yes indeed, no matter how long we analyze or trade in the market, there’s always something new to learn.

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