The Perfect Volatility Storm Coming?

The Perfect Volatility Storm Coming?

The Cboe Volatility Index (VIX) spiked to its highest level in nearly half a year on Wednesday, reflecting a trifecta of investor worries: next week’s U.S. elections, a lack of fresh relief measures and a third wave of coronavirus cases around the world.

While the VIX fell back to 38 today, market volatility is alive and well.

The $1.2 billion iPath Series B S&P 500 VIX Short Term Futures ETN (VXX), which tracks VIX futures, is now up 83.4% for the year, while the $1.4 billion ProShares Ultra VIX Short-Term Futures ETF (UVXY), which leverages its VIX futures exposure by 1.5x, is up 79.5% in the same period.

YTD Returns For VXX & UVXY
Vix Volatility

The Perfect Volatility Storm Coming?

Even as U.S. stocks hit record highs in August and September, the VIX remained elevated as investors refused to abandon their hedges ahead of a potentially turbulent fourth quarter that holds a presidential election. The S&P 500 notched multiple new highs during those months, but the VIX never fell below 20—a phenomenon that hasn’t occurred in two decades.

Since putting in its last high on Sept. 2, the S&P 500 sold off almost 9%, while the VIX has doubled to 40. That’s about three or four times what the volatility index trades at during placid times, though it’s still half of what it was in March, when the VIX closed at a record 82.69.

Cboe Volatility Index (VIX)

Vix Volatility 2

 

Explaining The VIX

The VIX measures implied volatility, a figure based on the price of near-term S&P 500 Index options. When stocks gyrate wildly, options contracts—which allow investors to buy or sell at predetermined prices—tend to cost more.

In addition to being a thermometer of investor sentiment, the VIX is used by investors and traders as a tool for hedging and speculation. There are no products that precisely track movements in the VIX itself (spot VIX) because the portfolio of options that the index tracks is constantly changing.

VIX futures and exchange-traded products that track VIX futures—like the aforementioned VXX and UVXY—are the next best thing. They tend to have a pretty tight correlation with spot VIX over short time periods, while that correlation breaks down over longer time periods due to the structure of futures markets, which require the “rolling” of contracts from month to month that eats away at returns.

Strong Hedging Demand

The VIX usually rises when stocks fall, and vice versa. That’s why it has a reputation as Wall Street’s “fear gauge.” But this year, the normal correlation has broken down, as the VIX has stayed high throughout both up and down markets.

The most likely explanation for this phenomenon is the strong demand for hedging by investors who don’t want to be blindsided by an unexpected election outcome or another COVID-related hit to the economy.

This week, all that hedging proved prescient as stocks tumbled the most since March amid rising coronavirus cases worldwide. Concerns that more virus relief measures may not come until next year added to the downbeat mood on Wall Street.

Other Hedges

A look at the VIX futures curve suggests that volatility traders think that the peak of uncertainty is right now. The futures curve slopes downward throughout the rest of the year and into next year (a condition known as backwardation), though implied volatility remains stubbornly high for many months into the future.

Vix Volatility 3

Other instruments investors use for hedging, like gold and Treasuries, are also elevated, though off their recent highs. Spot gold prices were last trading close to $1,900/oz, down from the record $2,064 seen in August, but still in rarified air. The SPDR Gold Trust (GLD) was last trading with a 23.3% year-to-date return.

At the same time, the 10-year Treasury bond yield was last trading at 0.79%, down from 1.92% at the start of the year. The yield may be near the upper end of its range of the past seven months, but it is still at historical lows.

YTD Returns For GLD & IEF

Vix Volatility 4

Finally, defined outcome ETFs, which use options to limit downside equity exposure at the expense of some upside potential, have largely followed the broader markets recently. However, InterAnalyst promises to shield investors from a bigger sell-off one were to occur.

We can help protect and grow your money.

Trump Coronavirus Market Nightmare

Trump Coronavirus Market Nightmare

I found this trading commentary wise for the timing of the “Trump Coronavirus Market Nightmare” and wanted to share this in our Bull & Bear Blog:

In this analysis, I’ll be shedding light using experience:

  • How President Trump’s Covid-19 Positive news may impact the market
  • Similarities and differences in historic cases
  • Why Trump possibly announced his testing positive so quickly

Trump’s Testing Positive

  • Trump testing positive for Covid-19, 4 weeks before the presidential elections, is not good news
  • Especially considering that the current market is momentum-driven, such bad news is good enough to scare new investors from pouring money into the market
  • We can see a similar case where the president’s medical condition negatively impacted the market

Historic case

  • President Eisenhower suffered a heart attack on September 25, 1955.
  • Before this incident, the stock market was at an unprecedented bullish rally
  • Immediately after the news was released that he was hospitalized, the market fell by 6%, leading to $14 billion instantly vanishing
  • Eisenhower recovered, and it was later announced that his condition was not serious
  • Eventually, the market bounced and continued to rally upwards
  • President Trump also announced his testing positive for Covid-19 a few hours ago
  • Just as Eisenhower’s case, the stock market is in an uptrend, with significant bullish momentum
  • The market is correcting, due to bad news, but not as significant as that of the past
  • Just as Eisenhower, considering the fact that Trump will be taken care of seriously, it’s most likely that he will recover from the virus
  • As such, it’s reasonable to expect that the market will continue to rally upwards
  • However, it’s also important to consider those market situations are not the same as the past

For a more in-depth explanation on what makes today’s market special, check out my previous analysis below:

The 2020 Tech Bubble

 

Why did Trump announce his condition?

  • This is an important question to ask, as Trump announced his testing positive for COVID via twitter
  • Trump is arguably the most powerful person in the world. He could have concealed his condition if he really wanted to, and later justify it as “classified information”
  • What could have been Trump’s intentions behind this?
  • In the case of the Prime Minister of the UK, Boris Johnson, his support rate was at 48% prior to him testing positive
  • After he got the virus, there was a sentiment of sympathy among the general public, leading to his support rate skyrocketing to 72%, an all-time high support rate ever since Tony Blair
  • Given this case and the fact that the presidential elections will be held in 4 weeks, Trump could have been targeting this sympathetic sentiment among the general public
  • It’s also highly likely that Trump recovers quickly, with the best medical staff from the country treating him
  • As such, he will be qualified to talk about the issue (as someone who has caught the virus) and suggest that he’s the only one capable of solving the problem.

Conclusion

As past cases demonstrate, problems regarding the President’s medical condition is never good for the market. However, given that the president recovers quickly, this could end up being a massive ‘buy the dip’ opportunity.

Best Trailing Stop Loss

Best Trailing Stop Loss

The Best Trailing Stop Loss is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor.

This way you can let the trend continue in your favor but lock in your profits once the stock turns around.

The trailing stop is a very useful exit for traders that simplifies the process of letting winners run but keeping losses small.

The Key To The Best Trailing Stop

The key to the best trailing stop is that it needs to be loose enough that the stock has room to trend upwards. But it cannot be too loose or you will give back too much profit when the trend changes.

For example, in the Tesla chart below, you can see that the 5% trailing stop is too tight. It doesn’t allow the trend to develop and we take too many trades instead of following the trend:

Best Trailing Stop Loss 1
Conversely, the 50% trailing stop below is too loose. We don’t capture enough of the trend and end up taking a loss when we could have had a big gain:
Best Trailing Stop Loss 2
The best trailing stop loss strikes a balance between the two. It depends on the situation but the 20% trailing stop (below) often does a good job:
Best Trailing Stop Loss 3

Which Trailing Stop Loss Should You Use?

I’m going to test a selection of them on historical data going back 30 years across more than 11,000 US stocks. We are going to use a new 252 DAY HIGH as a buy signal and then see which trailing stop produces the most profit while limiting risk. The trailing stop loss options we are going to test are as follows:

  • Percent trailing stop
  • ATR trailing stop (Chandelier)
  • Moving average trailing stop
  • Parabolic SAR trailing stop

1. Percent Trailing Stop

This is the simplest trailing stop. Whenever the stock trades X% below it’s in-trade high then we will exit the stock on the next day open. For example, if we buy Apple at $100 with a 20% trailing stop and it hits a high of $200 we will exit if the stock drops back to $160. The following table shows the effectiveness of the percent trailing stop following a new 252-day high in the Russell 3000 from 7/1990 to 1/2020:

Best Trailing Stop Loss 3

As you can see, the 20% and 25% trailing stop produced the best return-to-risk scores with a reasonable win rate and profit per trade.

2. Chandelier Trailing Stop

The chandelier trailing stop uses the average true range indicator (ATR) to position the stop a certain number of points away from the action. The advantage of this technique is that it takes into account the volatility of the stock and places the stop a certain multiplier away. For example, if Apple is trading at $100 and we use a 5 x ATR(21) stop, the stop will be placed 5 times the ATR(21) below the recent high. If the ATR is $5 then the stop will be placed 25 points away (5 x 5). In this test we are going to use the 21-period ATR and vary the multiplier to test and see if it is Best Trailing Stop Loss:

Best Trailing Stop Loss 3
You can see that the results for the Chandelier stop were pretty consistent when using a multiplier of 5 or more. However, the lowest multipliers saw poor results. ATR(21) and ATR(21) * 2 produced losses.

3. Moving Average Trailing Stop

The moving average trailing stop works like this. Once we enter the trade (a new 252-day high) we will follow it with a simple moving average line. If the trend changes and the stock drops under the moving average line we will then exit the trade on the next day open. The following table shows our results across different moving average lengths:

Best Trailing Stop Loss 6
The moving average trailing stops produced a reasonable return-to-risk score in the 40-60 day range. However, it was not as strong as the percentage stop and the win rate was lower too.

4. Parabolic SAR Trailing Stop

The parabolic SAR indicator rises according to specified parameters. But unlike the usual trailing stop, PSAR continues to move higher even as the stock stays where it is or declines. This means there is an element of time involved so essentially, the stock is penalized for not continuing the trend upwards. The PSAR indicator is made up of two parameters, acceleration factor and max acceleration. These are usually set up as 0.02 and 0.2, however, I found those parameters to be too fast. The following table shows our results for various permutations:

Best Trailing Stop Loss 7

The Parabolic SAR indicator produced some good return-to-risk scores particularly with small parameters (much smaller than most traders use).

Which Trailing Stop Works The Best?

The results shown above provide some answers as to which trailing stop works best in stocks.

  • The best trailing stop by return-to-risk was the 20% trailing stop with a score of 0.57. This was followed by the 25% trailing stop and the 15% trailing stop.
  • The best trailing stop according to average profit per trade was the 50% trailing stop with an average profit of 82.72%.
  • The 50% trailing stop also had the highest win rate at 53.3%. However, the 50% trailing stop naturally has a high drawdown and trade duration.
  • The Chandelier trailing stop did not perform particularly well with low return-to-risk scores across the board.
  • The moving average stop was not particularly effective either.
  • The Parabolic SAR indicator put in some decent scores according to return-to-risk.
  • Overall, the 15%, 20%, 25% and Parabolic SAR trailing stops appear to work the best.

Conclusions

In this Premier Bull & Bear Blog Post, we looked at various types of trailing stops and tested them on 11,000 US stocks back to July 1990.

We found that the best trailing stop loss was the “percentage trailing stop” (particularly the 20% and 25%) does a decent job of capturing upward trends in stocks while limiting risk.

Meanwhile, the Chandelier stop and moving average line produced disappointing results and do not provide much reason to use these methods. These findings support my previous experience and it was no surprise to me that the percentage trailing stops performed strongly.

If there is a surprise in these results, it is the decent scores for the Parabolic SAR indicator. This trailing stop looks like it has some merit and can be effective with all three membership levels.

So, If you wonder how this can help your 401k, IRA, and investment accounts, we have the solution for you. We are offering all new subscribers a 25% Promo codeWealth25 that will lock in for life.

The discount is available immediately through September 2020 and has a 15-DAY FREE TRIAL.  We also include our private member’s blog.

Stocks vs Gold and Silver, Who Wins?

Stocks vs Gold and Silver, Who Wins?

Stocks vs Gold and Silver; Which was the best investment in the past 30, 50, 80, or 100 years?

These charts compare the performance of the S&P 500, the Dow JonesGold, and Silver.

The Dow Jones is a stock index that includes 30 large publicly traded companies based in the United States. It is one of the oldest and most-watched indices in the world.

The S&P 500 consists of 500 large US companies, it is capitalization-weighted, and it captures approximately 80% of available market capitalization. For these reasons, it is more representative of the US stock market than the Dow Jones.

Both versions of these indices are price indices in contrast to total return indices. Therefore, they do not include dividends.

Including dividends leads to a very different picture, which is demonstrated in the charts below:

10 Year Comparison

10 Year Chart

30 Year Comparison

30 Year Chart

50 Year Comparison

50 Year Chart

80 Year Comparison

80 Year Chart

100 Year Comparison

100 Year Chart

Gold and Silver are not an inflation hedge

As for Gold and Silver, they are often seen as an inflation hedge. However, the data challenges this opinion.  That view stems almost entirely from the very fact that gold used to be money, which could not be printed, and due to the experience of the inflationary 70s when the monetary system changed and the price of gold floated freely.

However, we live now in a completely different monetary system, which essentially explains why Gold and Silver are rather poor short-term inflation hedges. Given the opportunity costs, investors should expect only significant and lasting inflation to drive the prices up. In other words, Gold & Silver may serve as an inflation hedge only when there is relatively high inflation,.

Gold and Silver are a hedge against the Government.

The only time gold has rallied significantly is when the CONFIDENCE in government declines.

That was the case during the post-1976 era for people who saw inflation as running away. That was because of OPEC creating STAGFLATION meaning it was cost-push inflation that eventually converted to demand-push inflation by mid-1979.

I understand that all of these gold-bug analysts have been preaching hyperinflation for decades. The whole Quantitative Easing (QE) was supposed to create $10,000 gold years ago. Here, after 15 years of QE, gold still remains trapped in consolidation overall. Only recently have we seen a bump due do the effects of the attempted move to the Great Reset.

Stocks vs Gold and Silver?

Stocks as a whole, specifically the S&P 500 index, performs much better than Gold or Silver.

More importantly, you will be better diversified and can perform substantially better than Buy & Hold.

If you wonder how this can help your 401k, IRA, and investment accounts, we have the solution for you. We are offering all new subscribers a 25% Promo codeWealth25 that will lock in for life. The discount is available immediately through September 2020 and has a 15-DAY FREE TRIAL.  We also include our private member’s blog.

New Housing Bubble

New Housing Bubble

A new housing bubble is clearly visible when the real home price takes into account the effects of inflation and therefore allows for better comparison over time.

The ratio in the chart below divides the Case-Shiller Home Price Index by the Consumer Price Index (CPI). The Case-Shiller Home Price Index seeks to measure the price of all existing single-family housing stock.

Based on the pioneering research of Robert J. Shiller and Karl E. Case the index is generally considered the leading measure of U.S. residential real estate prices and reveals a new housing bubble.

Market Cap -GGP Ratio

When inflation is high, prices as measured by the CPI increase, and the purchasing power per unit of currency decreases. The Case-Shiller index has a base of Jan 2000=100 while the CPI has a base of 1983=100. Therefore, it is the trend over time that is significant and not the absolute ratio values.

As you can clearly see in the chart, when the ratio gets near .6 a new housing bubble is achieved and real estate prices head down. The higher the ratio, the faster prices they head down.

Just look at the prices and how they have risen…

housing-bubble-2-0_orig

The charts above and the one below are clearly telling you that a new housing bubble is closing in on us now and is ready to pop.

housing-bubble-2-0_orig

Do you remember what hit in 2008, because this one will be much larger with sustained reach?

The Case Shiller Index is now 160% higher than in January of 2008. And as history showed us, since 1890, a decline of biblical proportions is coming.

When you add the New Housing Bubble to the Money Supply Chart, to the Market Cap to GDP chart, to the Dividend Yield Ratio, to the Market Cap to GDP Ratio,  to the Screaming S&P500 Dividend Yield, and to the current S&P500 P/E Ratio, you better be prepared for a long-term sustained deep economic crash. This will be a stock market and real estate crash will dwarf 2008.

No one can afford to live through a 7 to 15-year depression, so please prepare now because the warning signs are now clear.

We are so concerned that is coming or may have already started, that we are offering all new subscribers a 25% Promo codeWealth25” that will lock in for life. The discount is available immediately and includes our private member’s blog.

Money Supply Vs. Inflation

Money Supply Vs. Inflation

The Money Supply Vs. Inflation historical chart below can save your family if you follow its revelation.

The “M2 Money Supply”, also referred to as “M2 Money Stock“, is a measure for the amount of currency in circulation.

M2 includes M1 (physical cash and checkable deposits) as well as “less liquid money”, such as saving bank accounts.

The chart below plots the yearly M2 Growth Rate and the Inflation Rate, which is defined as the yearly change in the Consumer Price Index (CPI).

When inflation is high, prices for goods and services rise, and thus the purchasing power per unit of currency decreases.

Historically, M2 has grown along with the economy (see in the chart below). However, it has also grown along with Federal Debt to GDP in times of war.

In most recent history, M2 growth surpassed 10 percent in recessions, during which an expansionary monetary policy was deployed by the central bank, including large scale asset purchases. According to Bannister and Forward (2002, page 28), Money supply growth and inflation are inexorably linked.

The chart below is that of the M2 Money Supply Vs. Inflation:

Market Cap -GGP Ratio

The chart above is telling you what is coming very soon.

Inflation is tied to the money supply and every single period of time that the money supply expanded,  inflation soon followed with a market crash.

Now, when you look at the current money supply, on the far right, you can clearly see that it has exploded beyond reason just within the last few years. This is leading to a MASSIVE MARKET CRASH followed by RAPID INFLATION.

However, you have time still to prepare. As of today, inflation has not yet started but it will come soon.

Do you know which assets you should own, hedge, or sell immediately?

As the Money Supply Vs. inflation adjustment appears we will tell our members precisely what assets to buy, keep, and sell within the Members Blog.

 

 

Market Cap to GDP Ratio

Market Cap to GDP Ratio

Market Cap to GDP Ratio is a long-term valuation indicator for stocks. It has become popular in recent years, thanks to Warren Buffett.

Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.”

The Wilshire 5000 Index is widely accepted as the definitive benchmark for the U.S. equity market and is intended to measure the total market capitalization of most publicly traded companies headquartered in the United States.

The chart below is that of the Wilshire 5000:

Market Cap -GGP Ratio

The S&P 500 to GDP Ratio

For comparison purposes, the S&P 500 to GDP ratio is shown below as well. The S&P 500 consists of 500 large US companies. Just like the Market Cap to GDP Ratio and is a capitalization-weighted index.

It captures approximately 80% of the available total market capitalization. For these reasons, it’s a much better measure for ‘market cap’ than the Dow Jones – however, the two charts look very similar.

 

 

S&P500=GDP Bubble

The charts clearly illustrate that the total US Markets are well above their 2000, 2008 and although we have a bit to go, we are quickly reaching the 1929 bubble. Thus, it is safe to assume we are in Market Cap to GDP bubble territory.

Over the next few weeks, we will show you a few more charts that are a bit concerning. Our Wealth Preserver members are protected just in case the Unthinkable occurs.

 

 

The S&P 500 Dividend Yield Is Screaming

The S&P 500 Dividend Yield Is Screaming

The S&P 500 is the most widely cited single gauge of large-cap equities on U.S. stock exchanges. Standard & Poor’s estimates that more than $7.8 trillion is benchmarked to the index, making it one of the most influential figures in the world of finance. To be included, a company must be publicly traded in the United States and report a market capitalization of $5.3 billion or greater.

According to Mike Maloney, the S&P 500 Dividend Yield is the second-best way to measure a market value (after the Price Earnings Ratio).

The dividend yield indicates how much a company pays out in dividends each year relative to its share price. In other words, it measures how much “bang for your buck” you are getting from dividends.

In the absence of any capital gains, the dividend yield is effectively the return on investment for a stock. The lower the dividend yield, the less you get for your investment, and hence the more overvalued a stock.

The historic S&P 500 Dividend Yields were deducted by Robert Shiller and published in his book Irrational Exuberance.

S&P 500 Dividend Yield

As you can clearly see in the chart, The S&P 500 Dividend Yield Is Screaming and telling you that it is well into bubble territory and will eventually correct. When it does correct or crash, will you be prepared or warned, or will you just go down with the markets?

 

 

S&P500 P/E Ratio

S&P500 P/E Ratio

The S&P500 P/E Ratio shows whether the stock market is overvalued or undervalued. It’s not a matter which Stocks you own in your portfolio because when the P/E Ratio turns EXTREME, VIRTUALLY ALL STOCKS Crash.

The price-earnings ratio is calculated by dividing a company’s stock price by its earnings per share. In other words, the S&P500 P/E ratio shows what the market is willing to pay for a stock based on its current earnings.

Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced this adjusted ratio to a wider audience of investors. The P/E Ratio is illustrated below and is extremely simple to understand with a quick view of the chart.

So, is it under or overvalued?

S&P500 P/E Ratio

Today the P/E Ratio is sitting at 28 and is in Extreme Bubble Territory and getting higher!

All you have to understand from the chart is that since 1880,

“Every single time the S&P500 P/E Ratio rose above 20, the stock market crashed; Every Single Time!”

You know what to expect, right?

Tomorrow we will show you an entirely different chart that will simply stun you.

Their Last Hoorah!

Their Last Hoorah!

The Last HoorahThis is the last hoorah for the old Democratic leaders. They know they are soon “out the door” because of their age.

Not having to stand for reelection because Nancy Pelosi (born March 26, 1940) who is now 80 years old and Charles “Chuck” Schumer (born November 23, 1950) who is 70 now, and Joseph “Joe” Biden Jr.(born November 20, 1942) who is 78 do not stand a chance in hell of holding on to power much longer.

They are now more desperate to overthrow Trump with the help of the media as they deal a death-blow to the investment community.

Beside their plan to restore taxes to the pre-Reagan era of 70%, their last hoorah is to impose a tax on every buy or sell transaction.

Wall Street has been dumping money into Governor Cuomo’s coffers trying to hold off this proposal.

He has been standing up against the Democrats in Washington but this is yet still part of the intense battle going on for the 2020 election.

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