walk the line
S&P 500 and VIX YTD 2020. Click for larger image.
Reeling from a violent selloff that saw the S&P 500 drop nearly 6% on June 11, equities still managed to stagger to a positive month in June as the continued outperformance of the technology-heavy Nasdaq 100 index boosted our new Smart Tech strategy once again.
Despite an impressive rally in equities since the March lows, the message from the VIX continues to be one of uncertainty and caution as the widening gap between equity prices and economic reality has kept hedging markets on edge. An unusual occurrence, markets have now staged a 3-month winning streak with the VIX Index remaining mostly over 30. It appears that the “Gladiator Match” between liquidity and solvency will be ferocious at the scrimmage line of the unchanged mark on the year for equities.
While common around critical junctures, this “difference of opinion” between stocks and hedging markets creates a challenging environment for strategies that respond to the message from the VIX. As a case in point, long and short VIX positions (the two positioning options for Alpha Seeker) have both been unprofitable in the hesitancy since May (bottom panel on image above). While this condition persists, hedging positions in Smart Index are relatively cheap but have yet to see the volatility from stocks that would move them meaningfully higher.
Through many market phases over the past decade, TCM strategies have produced their top-ranking results by a consistent application of our process, not by consistently “out trading” the market. Especially with the enormous range of possible outcomes stemming from the largest economic shock of our lifetimes, we believe that prudent risk management is paramount.