- Capital Contrarian
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- VIX Has Entered the Chat
Estimated read time: 3 minutes and 38 seconds
In this week’s newsletter:
Market recap
Skills & data used this week
Top holdings: what I am buying & selling
Market Recap
YTD returns:
S&P 500: +1.45%
Nasdaq: +1.46%
Russell 2000: +1.83%
US Dollar ($UUP): +0.40%
Happy New (trading) Year
Spoiler: we are still in a recession and nothing in the New Year has changed that fact.
Tesla lost more market cap in the first day of trading (-12.24%, -$47.6B market cap) than any company has in HISTORY to start a new year.
New year, same shit.
Don't believe me that we are (still) in a recession? Check out the latest ISM Services report:
The ISM (Industrial, Scientific, Medical) Services report tracks the pulse of manufacturing activity. This latest reading of 49.6 is the lowest level since May 2020. New orders are typically higher than the Services itself; orders come in first, then manufacturing fulfills.
New orders just plummeted to a reading of 45.2 from 56, the lowest drop EVER on record outside of the "anomaly" that was the COVID shock in March - May 2020 (
Less orders = less demand = less profit
Notice how the ATH (all-time high) for ISM Services peaked at the same time as the S&P's ATH?
So why did the market have a face-ripping rally after this disaster of a report came out on Friday?
Because the entire market is BEGGING for the Fed to pivot their motion to hike interest rates further.
Omg recession fears! Fed can't possibly hike rates higher! That will make it worse!!
Exact quote from the Fed meeting minutes from December which were released this week:
"All members affirmed that the Committee is strongly committed to returning inflation to its 2 percent objective"
Confirmed, no pivot.
Skills & Data Used This Week
The VIX.
If you read that as Roman numeral 5,009...honestly kuddos to you. But also get with the f'in program, this is a post about financial markets.
The VVIX.
That's not even a possible Roman numeral, so suck it.
VVIX/VIX ratio.
What do they measure and why is the ratio important?
$VIX = a measure of the implied volatility of the S&P 500 index. It's calculated using the prices of put and call options on the S&P 500 index, and is often referred to as the "fear index" because it tends to rise when market volatility increases and fall when market volatility decreases.
$VVIX = a measure of the implied volatility of VIX options. VIX options are options on the VIX index, which means that they allow investors to speculate on the future direction of the VIX. So in short, VVIX measures the volatility of...volatility. Woah.
Combining these two metrics into a ratio provides investors with a potential leading indicator for market performance.
The ratio can give investors insight into the level of uncertainty and risk in the options market, as well as the level of demand for VIX options.
A declining ratio = market uncertainty
A rising ratio = market complacency
Rising or falling, directionally, is certainly important. But what do ALL securities in my portfolio have in common?
They are BULLISH trending.
So one would think that if the VVIX/VIX ratio flips to a bearish trend, which can only happen if the ratio falls and continues to trend in the downward direction, that's bad?
Bingo.
TradingView indicator "Bridge Bands [joecat808]"
It doesn't take a "chartist" to understand that bullish = green and bearish = red
What I look for are phase transitions - when something flips trend and HOLDS
Look at the chart above for the VVIX/VIX ratio when it broke to bearish trend:
Broke trend on January 18th and held until flipping bullish March 25th - S&P 500 hit a trough of -10.2% during this timeframe.
Broke trend April 22nd and held until flipping bullish on July 28th - S&P 500 hit a trough of -16.5% during this timeframe.
Broke trend August 23rd and held until flipping bullish on November 18th - S&P 500 hit a trough of -15% during this timeframe.
Broke trend on December 30th....and is holding
In The Account | my top holdings
$XLP (Staples), $PINK (Healthcare), $XLU (Utilities)
$UUP formerly held the top spot in my account, and now it has been surpassed by these 3 core holdings
METALS
It's easier to just call this "metals" because I have a lot of them in the portfolio currently
$GLD, $GDX, $GOLD, $SLV, $PPLT
$UUP - US DOLLAR
Didn't go anywhere, just reduced the size. There are stronger signals to be in currently, but it still remains a core long.
On The Radar | positions I want to build / sizing up
CHINA
Stay tuned...
Off The Grid | removed positions / short selling opportunities
TECH - $XLK, $QQQ, $GOOGL, $META, $TSLA
RETAIL - $XRT
HIGH BETA - $SPHB
CRYPTO - $BITO, $MSTR
HIGH YIELD - $HYG
ENERGY - $XLE, $XOP
Until next week....
-BW
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.