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Market Lab Report - Time to take profits? VVM returns for 2017 just topped +50%

This note is for members but also to give those who are thinking of joining an understanding of profit taking in certain situations when it comes to both stocks and ETFs.

The current signal on the VIX Volatility Model (VVM) just topped +20% with returns for 2017 topping +50%. Each time returns hit a new decile (20%, 30%, 40%, etc), including when the model was in beta, I would send an email notifying members that some may wish to take profits.

The market has been challenging to say the least given quantitative easing manipulations. Even with the US ending QE in late 2014, other major central banks continue to print thus QE finds its way into the tallest standing midget which is the US market. Bond king Bill Gross wrote a piece on it here: https://seekingalpha.com/article/4042873-bill-gross-happiness-runs 

This does not create lasting uptrends in individual stocks. The number of higher quality stocks such as NVDA are scant at best. The bull market that began in 2009 is nothing at all like bull markets of decades past where a confluence of leading names made moves that sustained over a longer period. It's as if the market is being pushed on a string, reluctant to move in either direction in a meaningful manner, with the occasional short, sharp correction that finds a floor then moves higher. 

But when the market baby steps its way higher or takes 3 steps forward, 2 1/2 steps back, it can be called a "bull" market of sorts, though certainly not one that is easy to navigate. Our strategy of buying stocks on constructive weakness and selling into excessive strength in context with the stock's chart and overall general market has worked well these past few years. 

All this is to say that even though the model which is an ETF-based strategy is not officially taking profits here, there's nothing wrong with taking some profits off the table, depending on your risk tolerance levels and trading styles. More aggressive traders may of course wish to strictly follow the model.

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