Dead Money and Fear; How do I exploit that scenario…….
If you read our last article in regard to Shorting the XLF and going Long the XLK, over the past weekend, you outperformed the market by a wide margin.
As follow- up, how do we make money in this extreme volatility? The benchmark for which to measure volatility, within the broad U.S. Equity market, is the VIX Index. Currently, the VIX is trading close to a level of 45, after spiking above 60 this week (the spike above 60 marked the second highest level this measure of volatility has achieved since the last quarter of 2008, when it spiked above 90).
The VIX is often referred to as the fear index, and certainly no can argue; there was plenty of fear to go around in the last three trading days. However, if we take a step back, and a deep breath, one realises the market is trading purely on behaviour and emotions which may have culminated to a near term extreme. If one believes most of the fear, and diabolical news is already priced into the VIX, based on the last two weeks of headlines (that is not say we won’t possibly go lower in the intermediate term), then the current trade is to exploit that spike in the VIX Index, and pair it with a specific sector. Basically, the charts are telling you everything you need to know and the Fed reconfirmed it yesterday.
Based on that belief, for those of you who reaped the benefits of a 1% to 4% return from our trade recommendation at the end of last week, or for those of you who did not pull the trigger, but followed the dynamics of the recommendation; visit www.thechartlab.com to find out which trade we are detailing right now, in regard to the VIX Index.