In the most recently ended week, the VIX-Trading Portfolio gained 20 basis points versus the 12 basis point gain on the S&P 500, more-or-less in line. Year-to-Date, the portfolio has gained 4.7% or has lost 1.9% percentage points relative to the market over the same time period. Since inception, the portfolio has appreciated by 2.8% versus the 7.9% gain on the market, for a relative loss of just over 5 percentage points. This is all reflected in the below chart, with the blue line being the portfolio, the brown line being the NASDAQ, and the green line being the S&P 500.
At this point, the portfolio remains completely exposed to the S&P 500 via the S&P 500 Spider ETF (ticker SPY). That said, I am considering going to a short position in the portfolio, be it a half or full position. This is as the 6-month skew on the VIX is now -1.13. This level is fairly significant and indicates that the average six-month mean is significantly less than the distribution's median. Generally speaking, a negative skew will tend to indicate positive price performance for equities. However, this bias tends to flip as the skew moves into more extreme readings, i.e. any reading less than -1. More so when you only include periods when equities prices have already run considerably, here defined as a 7% or more divergence between the price and the 200-day moving average. I show a crude chart of the S&P 500 since early in 2000 superimposed upon future 6-month price performance after the skew/moving average divergence is seen.
I find this interesting, as except for the period following the market bottom in 2002/2003, the skew/moving average divergence did begin to flash warning signals in or around market tops before major bear markets or corrections.
So does this mean go short right now? Probably not. I am not ready to pull the rigger yet, as I have not seen any significant sign of weakness yet. Although the volume here on the upside has been weak, market prices have continued to march higher. Momentum has been with market. Outside of last Friday's results, I just not have seen any real weakness within the price/volume characteristics. One day does not a trend make, and I would be more comfortable moving into short positions after more signs of weakness.
At this point, the portfolio remains completely exposed to the S&P 500 via the S&P 500 Spider ETF (ticker SPY). That said, I am considering going to a short position in the portfolio, be it a half or full position. This is as the 6-month skew on the VIX is now -1.13. This level is fairly significant and indicates that the average six-month mean is significantly less than the distribution's median. Generally speaking, a negative skew will tend to indicate positive price performance for equities. However, this bias tends to flip as the skew moves into more extreme readings, i.e. any reading less than -1. More so when you only include periods when equities prices have already run considerably, here defined as a 7% or more divergence between the price and the 200-day moving average. I show a crude chart of the S&P 500 since early in 2000 superimposed upon future 6-month price performance after the skew/moving average divergence is seen.
I find this interesting, as except for the period following the market bottom in 2002/2003, the skew/moving average divergence did begin to flash warning signals in or around market tops before major bear markets or corrections.
So does this mean go short right now? Probably not. I am not ready to pull the rigger yet, as I have not seen any significant sign of weakness yet. Although the volume here on the upside has been weak, market prices have continued to march higher. Momentum has been with market. Outside of last Friday's results, I just not have seen any real weakness within the price/volume characteristics. One day does not a trend make, and I would be more comfortable moving into short positions after more signs of weakness.
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