Implied volatility as measured by VIX indicates wider prices in the near term. The CBOE Volatility Index VIX has increased to 20, which is it’s long term average, suggesting prices will spread out to 20%.
Along with a volatility expansion, as typical, we are seeing stock prices trend down.
My leveraged exposure to the long term U.S. Treasuries has offered an asymmetric hedge in recently. The long term U.S. Treasuries don’t always play out this way, but this time we’ve benefited from their uptrend and some negative correlation with stocks.
Gold is another alternative used as a hedge exhibiting relative strength and time-series momentum.
If this is just a short term correction, we should see some buying interest near this point or a little lower. If last month’s lows are taken out, this may be the early stage of a larger decline.
We were well-positioned in advance this time, so we’ll see how it all plays out.
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical.
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