Last Friday, March 27th, was a "Triple Witching" day. Triple Witching days occur four times each year. They are merely days when three different types of options expire. These dates do tend to cause increased volatility. Knowing that, we must factor that event into our market analysis.
That said, in our view, it does not matter "why", it only matters that it is.
Said differently, it does not matter why volatility is high. It only matters that it is high. And, from studying market history, we know that volatility usually begets volatility. Back on March 8th, we published a blog that highlighted the fact that VIX had spiked. The title of that article was "Have We Found Support?"
Clearly, the answer is "no" as the broad markets have broken through those levels and found new short term lows. Take a look at our second chart.
This is the daily candle chart for the S&P 500 as of Friday, March 27th. Notice the blue gray bars on the chart. Those blue gray bars represent the potential areas of support that we've been saying could act as support. Friday, March 20th tested that support. Thursday, March 26th tested that level again. Friday, March 27th that support area failed to hold.
As of Friday, March 27th,
- The S&P 500 is down approximately 9% from its highs.
- The Russell 3000 is also down approximately 9% from its highs.
- The Russell 2000 (small companies) is down approximately 10% from its highs.
But take a look at MAGS:
MAGS is the Roundhill Magnificent Seven ETF. This ETF is proxy for the Magnificent 7 stocks that we have been discussing for the better part of 3 years now. And, as you can see on the right side of the chart, MAGS is down approximately 19.8% from its October 29th high.
Many would consider that to be bear market territory.
If there's good news here, it is in the bottom pane of these last two charts. The bottom pane is the 14 period RSI. In short, traditionally, when RSI reaches 30 it is considered "oversold". When we see RSI that low a bounce higher is quite possible. The problem with this is twofold.
First, you cannot use RSI as a timing device as RSI can remain in an "oversold" condition for quite some time.
Second, just because something experiences an oversold bounce, that does not mean that the bottom is in and the pullback is over.
This past week, I finished Buff Dormeier, CMT's book The Volume Factor. The book is a master treatise on using volume in your market analysis. While there is a lot of great content in his book, I particularly liked this line:
"Outcomes are what matter, not investment returns."
Most of our clients are either very near retirement or already in retirement. Preserving capital is critical to these clients. However, it is no less important if you are in your 20s, 30s or 40s. As I state in the sub-title of my book,"To Invest Well Over a Long-Term, Sometimes You Have to First Survive the Short-Term."
Right now, risk is very high. While we do see some signs of a bottom (not discussed here), we also see plenty of signs of "risk-off" behavior. As a result, we have a very defensive posture.
As always, if you have any questions, please do not hesitate to reach out. We have capacity to serve additional clients and would be happy to see if we are a good fit for each other.
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