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A Very Important Failure Has Occurred

CAMS Weekly View from the Corner – Week ending 2/22/2019

February 25, 2019

We are now at an inflection point.  Does this market want to go to the previous high levels attained in September or does it want to head south again to do some sort of a retest of the previous low areas.  Historically, retests are customary but are not a certainty. The Fear Gauge is Sitting On The Fence – Weekly View 2/11/19

The S&P Volatility Index is often referred to as the “fear gauge” in analytical circles.  When concerns are rising among market participants the Volatility Index typically rises and gives us insight of general fear levels.

In our most recent Weekly View we focused on this fear gauge and the fact that it was sitting on a fence as to which direction it would want to trend near-term.

The significance of this direction is captured in our header quote (above) which is an excerpt from said Weekly View.

Realizing our most recent View was two weeks ago we have had a decent amount of time pass to help answer the direction of the Volatility Index.  The direction offers us insight as to whether collective fear levels would continue to decline or ratchet back up as they had throughout the fall season when this Index was at similar readings.

Click for Larger View:

The above chart depicts the Volatility Index and reflects the black line that was shared two weeks previous.

We can see this black line had acted as a line in the sand in the fall of 2018 whereby it would, yet again, launch higher upon reaching these general levels.  In so doing it reflected the fact that market participants continued to be quite concerned and cautious in their outlook and with this the stock market itself would end up going lower.

The significance of this failure is that in the month of February it had made several attempts to launch higher only to succumb to lower readings each time.  With this we then see a complete failure whereby the Volatility Index has now began to trend away from the black line.

This speaks to continued receding fear levels as stocks themselves continue to improve to the upside.

When it comes to the stock market, especially historically highly valued stock markets such as we have currently, nothing is ever on true autopilot if you will.  Importantly though, the above behavior from the recognized fear gauge offers a backdrop of a calmer market near-term.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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