Frequently Asked Questions

Dr K VIX Volatility Model
With the market down for 9 straight sessions, why is the VIX Volatility Model (VVM) still showing in cash?

The only thing that never changes when it comes to markets is change. From July to end of October 2016, the S&P 500 had an unprecedentedly shallow period of mush-like behavior. Little progress can be made in such a rare environment. We discussed how best to deal with the situation in this report:

https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-mega-frustrating-markets-not-necessarily 

The S&P 500 then ended its quagmire with another nearly unprecedented event- it fell 9 days in a row as of this writing (November 4, 2016) in a slow, creeping manner. The last time this happened was in December 1980, or nearly 36 years ago. But even back then, the 9 day correction was pronounced (-10.8%) instead of a molasses-like correction (-3.1%).

The VIX Volatility Model uses a number of techniques to maximize its performance so while it may have many little losses along the way, the profits which can be much larger, more than make up for the small losses. In this case, there was no reasonable entry point where the risk/reward was favorable enough for VVM to issue a buy signal (buying volatility).

That said, the S&P 500 rests just above its 200-day moving average so a bounce of some sort should take place. But never make assumptions especially given how unusual the markets have been behaving. In highly challenging times, it is often best to trade smaller positions.

Fortunately, markets will change again offering windows for opportunity to profit as they have done numerous times earlier this year.


Published: Nov 5 2016