Market Update December 27, 2021

The Volatility Buckets

What is it??

Volatility is one of the main risks that investors may wish to avoid. Tracking the levels of volatility helps determine how investors may play the given market conditions.??

The following quote from Keith McCullough, CEO of Hedgeye Risk Management is helpful when explaining how volatility relates to the market.?

“According to me, there are 3 Buckets of Volatility (let’s use VIX as the easiest example): A) The Investable Bucket = VIX 9-18, where you can buy every d…? dip and make money in SPY B) The Chop Bucket = VIX high teens to high 20s, where you can get chopped up if you can’t fade/trade C) The Bad Word Bucket = VIX > 30 going towards 80, where levered long dip buyers die”*

Hedgeye Risk Management

As you can see, there was a recent move of volatility from the Investible bucket to the F bucket where SPY (the SPDR S&P 500 ETF Trust) declined. As VIX moved back into the chop bucket, SPY prices recovered their losses. Despite the difficulties and limitations of using technical analysis, the chart above helps to show the relationship between the volatility buckets and SPY.?

Why does it matter?

There is a lot of noise surrounding the markets. Analyzing the VIX helps us cut through the noise and see what is happening in the markets. Another way we cut through the noise is by being selective on who we take advice from. We hope to learn from Keith and more money managers (like him) when navigating these tough markets.?

Global Equities Edged Higher Last Week

What is it?

It was a short trading week with markets closed last Friday. However, that did not stop the national and global stock markets from edging higher.?

“The Vanguard Total World Stock ETF (NY-SEARCA:VT) with its $25B AUM, closes in the green”**

Why does it matter?

“VT is one of the market’s broadest equity ETFs, as it provides exposure to over 9,300 holdings across global equity markets, including the United States, foreign developed economies, and emerging markets.”**

We use VT as a benchmark when analyzing the performance of our equity models. VT is helpful for two reasons. First, since it is a global equity ETF its price action gives us an idea of how optimistic the global stock markets are. Second, it serves as an investment vehicle that provides a diverse group of equities in one fund.?

The rebound of VT may be a signal of continued optimism by investors that are looking for more upside in the global stock markets.?

Other articles I found interesting this week:

Steady gains leave indexes higher in holiday-shortened week

Billionaire Crypto Pioneer Says Market Will Grow To Tens Of Trillions Of Dollars

Double Whammy From Inflation Data Ups Risk For Markets

Current 401(k) portfolio

Our last portfolio reallocation: 10/11/2021.?

Want more information?

The weekly market update provides a window into the process we use in our investment management process. At MoneyCoach, we believe markets are always changing and require a nimble yet data-oriented approach.?

Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.

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Sources:

*Keith McCullough. “CHART OF THE DAY: 3 Buckets Of Volatility”. 12/21/21. Hedgeye Risk Management. https://app.hedgeye.com/insights

**Jason Capul. “Chart Talk: Vanguard Total World Stock ETF climbs back above 100 day moving average”. 12/22/2021. Seeking Alpha. https://seekingalpha.com/news/3782858-chart-talk-vanguard-total-world-stock-etf-climbs-back-above-100-day-moving-average

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