Dow Futures down close to 600 points as I am writing this.
There are a lot of voices on this thread that I have huge respect for, but not everyone here has the same trading style. As Geov has so correctly put it, we are still in an expansion phase. During these times, I have to continually remind myself that I am an investor, not a trader. When I act like a trader, more often that not, I loose money. It’s just not my forte. Others who have dedicated careers to this are much better at timing the market than I.
Chris, I read your thread and followed the link to your site for the original article those several weeks back and I did took note. But I did not act because I do not believe this is 2007/2008 again, not yet anyway. I think this is a long overdue sanity check. And if nothing else, we are out of this narrow range the market has been trading in for the last several months. As of now, I’m still net long and plan to stay that way. I’m thinking the October 2014 lows will be tested before this slide abates. If we bounce off those numbers, we should be able to start moving in the right direction again.
One final note. To those of you who correctly called this most recent downturn… please come back when it’s time to call the bottom. I will be watching with great interest.
The best way to catch the downturn are timing signals on multiple timeframes. I hope that this feature is added. As for the current moment, use Stockcharts to see the signal last Thursday.
Days like this are when I’m happy I’ve moved more towards relying on quantitative based models, because this is typically when “going with my gut” has led to some really dumb moves. Not so much succumbing to fear and selling low, but just overthinking things and getting way too cute, feeling I had to take some sort of bold stroke simply because the market was volatile and presented some sort of opportunity I had to take advantage of. It’s nice to just to just step away from the emotion of the market for a little while and let the model do the heavylifting. If I just come out of this beating my benchmarks, it feels like a “win”.
Wow, saw the QQQs 20% life Down, snapping back to now -2,5%. Crazy Day.
Glad I am net neutral with a short on VWO (-4.34%), so far my positions of a book of my 5 Stock Modells do not outweigh the hedge, sligthly in
the plus (though 10% DD since 06/06).
Gee, what a day!
Regards
Andreas
RSP was down 35% at the opening. I wonder what that was all about.
Steve
The VIX briefly hit 50 earlier. Been at least a few years we hadn’t seen that.
Steve,
it is back up to “normal” now.
A lesson to show us, how dangerous stop loss orders can be.
Steve, I saw RSP as well I think it had stopped trading. I put a small limit order ($60) in above the ask ($56.xx at the time) and it was not filled. Trading has now resumed and it’s back to where it should be around $75.
Funny how back in May everyone was talking about the stock market when I was in China. The SSE lost 30% since then. I guess the old saying is true.
Investors and market cycles just repeat themselves over and over again. In the late 1980’s I sat next to a Japanese businessman on a flight and asked him if he was concerned about the Japanese markets. His reply was astonishing yet typical “No, they go up every day.”
Chris355: By no means calling a bottom but sold all EUM and CHAD early this morning. Will reload on a retracement rally.
A good friend of mine got stoped out at the Botton, he startet with 500k 2.5 Years ago, March up to 1250k, now 850 and sitting on the sidelines.
I stay hedged for now, maybe forever (build some modells that outperform the hedge by about 20%, if I use leverage for the hedge that ist
40% a year with now market timing and with a Simulated MDD of about 20% (I can live wiht that!).
The good Thing is, you can learn, go back to p123 and build Systems that take in the learning to be more robust in the future.
Regards
Andreas
If you are prepared for a very rocky ride, I’d start shorting VIX now (I actually did with a small amount of capital this morning - dollar averaging in). Should make 50-100% over the next 3 months or so (but could lose over 100% first - so need to be ready to ride it out). VIX won’t stay above 35 long-term.
Tom,
Very smart. I am thinking about this too – although I probably will no do this in the end (laziness or just keeping it simple is my excuse). It is very smart.
For anyone using XIV you might wait until the VIX Futures term structure goes into backwardation (easy to check on vixcentral.com). It is frustrating to see the VIX decrease significantly and still loose money on XIV (which happens a lot when the VIX is in contango). Also, it is likely to prevent you from entering this trade too early if there is more of this to come.
It works the other way around: XIV gains when term structure is in contango. XIV loses when term structure is in backwardation.
Nevertheless, VIX > 40 was a good time to buy XIV in the past, unless the Great Fall of China will be worse than the Great Recession I and II 
Cyber,
Thanks for the correction! It has been a while since I have done this trade. Even with 5% of my portfolio, I could not tolerate the volatility (or checking Contango/backwardation daily). It still makes sense.
Is it odd that I’m happy my portfolio is down ‘only’ 3.4% today?
Also, if it’s any conciliation, the CNN Fear and Greed Indicator is sitting at a ‘3’ as of the time of this post. Where ‘0’ is extreme fear and ‘100’ is extreme greed. If you’ve never seen the indicator, please check it out, it’s very useful at taking a broad pulse of the market.
FWIW the VIX stayed above 40 about 6 months starting end Sept 2008. It was also in backwardation all this time. The max drawdown of XIV would have been -95% (calculated from synthetic price)
All of the futures contracts look to be priced between 20 and 25, which is not quite as compelling as 35 or higher:
Also, since the futures curve is now in backwardation, buying XIV may not work that well, as was pointed out in earlier posts.
Good points. I’d use UVXY, and short it. But, I agree the Sept. futures closed at 25.10… so it’s very possible VIX will stay elevated long after that. This was only ‘play money’ for me, so not gonna make or break me. I built a little trading system on this in 2010, and have been trading it with small money since. It’s a position size of about .33% of my total port, so not gonna kill me one way or the other. But have been making some with it. If it goes down 100%, I’ll just reset the position. This is, however, not in line with the title of this thread - as this position is an ‘anti hedge’ in terms of behavior with market DD’s.