Volatility & Markets

In The Highstreet Group by John Bartoletta

Volatility and the US Stock Markets
The volatility continues to run at a high level for the U.S. stock markets, with the Dow Jones fluctuating 100 points on a regular basis and many times doing it in both directions over the course of a day. Often, these higher volatility periods can indicate a trend change, with 17,000 being the nearest support level to hold on the Dow in order to keep the current uptrend intact. If 17,000 in the Dow does not hold then we will likely move lower to test the October low around the 15,800 level. That would cause us to come back into the market and buy equities.

However, we also have concerns about the outsized moves in energy, interest rates, and the dollar, which have all moved to multi-year extremes. We believe these are not normal trends and indicate that something big may be going on, but we cannot tell what it is yet, and no one else seems to have a good handle on it either. Adding to our concern is the recent weakness in many of the larger financial stocks that have just started to pull back on heavy volume, and is another sign of possible change ahead. We think it’s time to be extra conservative and avoid taking any unnecessary risks for the next few weeks at least.

CURRENT TRADING STRATEGY: We are letting the markets digest and find direction during the month of January. We currently have higher cash weightings in the portfolios around 22%. We have no counter trend downside hedge in place as of now but are ready to deploy the protective hedge if necessary.

Twice a year (January and July) we compile a large amount of data and update our entire research library. This data also allows us to forecast forward with some of our predictive commentary. In the meantime this is a short blog that is relevant to the current market behavior. Look for a strong series of blogs starting next week that will outline our thoughts for the first half and the second half of the year. Until then, we continue to remain diligent in our research and will continually monitor the markets and report back as data becomes available.