February 17, 2023

Volatility Reports 2/17/23

Bull Market in Fear, Not Today.

Unlike 2010-2013 the market is not discounting the next 2007-2009 market crisis. Rather they are focused on statistical inference. After three down days in a row and I-T MA systems giving sell signals Anthony Scaramucci is widely quoted by content providers on Twitter that “The S&P 500 closed today at 4147.6, above its 200-day moving average for the 18th session in a row…” and

“No prior S&P 500 bear market in history has made a new low after making 18 consecutive closes above its 200-day average…”

So absolutely there is no concern among the bulls, without considering each case in its own context.
To be clear, if you are a bull, you are short volatility.

Traditionally it is thought that the alpha from active management comes down to two factors:
(1) asset selection and (2) short volatility or short correlation exposure.

The problem is that when markets become more correlated, asset selection becomes increasingly irrelevant. As in all risk assets and subgroups move in the same direction. Bitcoin is up, commodities are up, stocks are up, and bonds are up. The only thing that remains is the short volatility exposure to beat the benchmarks.

Many classic active management hedge fund strategies derive a lot of their alpha from simply being short volatility and short correlation. Long–short strategies operate in this way, as do relative value arbitrage strategies.

Even buy-and-hold, classic value investing is synthetically short volatility. In fact, one of the components of replicating a short variance swap is buying on lows and selling on highs—that is, actively timing the market.

This is the task of Contrary Thinker, timing the market and improving results based on experience.

The chart on the left reveals two key facts. Both the S&P and Dow rolled over after three down days and gave a trend following a sell signal.

Whatever idiom you like, ” Kill or be killed, move it or lose it, puff it or pass it, cook or get out of the kitchen. Just don’t stand in line order or get out of line. It’s your time to move your business to the next higher level.  Start on the SmartPhone at $5/month, and $10/month.

 

The other fact is the new sell signal is supported by the setup going into today with the volatility model seeing the context as tense and ready for a trend, a TE#2. The timing for the low is outlined below based on Market Map studies.

The “Time Factor”

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