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Continued Stock Volatility

CAMS Weekly View from the Corner – Week ending 10/26/2018

October 29, 2018

This past week the stock market continued with it recent volatility as stocks went lower by the close of the week.  In our most recent Weekly View we offered a “quiet the noise” chart which depicted the S&P 500 price action on a weekly basis.

Said chart included two different lines of which if the S&P 500 was to be merely having a short downdraft those lines of support should hold.  They did not.  As stated in presenting that weekly chart; dips below are not a problem but if those lines become a hard ceiling whereby the S&P price action refuses to get back above them then it will be pointing to more significant issues.

With Friday’s close the weekly chart reflects both lines have been penetrated.  With this we now have a dip below important support levels.  The central observation point now is can the S&P 500 pull back up above them soon.  To put a number to this the S&P 500 needs to get above 2700 to attain the lower of the two.  That’s the starting point of repair.

This week is an important week of price action as there has been a lot of damage done throughout the landscape of the stock market.  Some stability, as a starting point, is necessary soon lest we have a cliff dive of a market drop.

Click for Larger View:

Two weeks ago we presented the above chart which is the S&P 500 Volatility Index.  This is known as the “Fear Gauge” for the stock market generally.

Previously we included the red arrows pointing to the volatility episodes in 2018.  The far right is our current experience.  We have seen the initial spike denoted by the red arrow with a follow-on quick downdraft which is typical in volatility events.

The secondary up thrust (extreme far right) is also normal.  The blue arrow points to the fact that this secondary up thrust was unable to move to a higher high and is offering the initial signs of a downtrend.  This initial sign of a potential volatility downtrend holds the key.

Historically speaking this storyline is how volatility episodes dissipate.  A big up thrust which is followed by a downdraft which is then followed by a secondary up thrust that is not as strong.

If the S&P 500 is to begin some repair and reclaim the 2700 price level, dissipating volatility via this fear gauge is a necessary ingredient.  If you want to follow this process simply click the link below the chart in upcoming days and weeks.  In addition, the aforementioned weekly chart of the S&P 500 can be viewed here:

We have a historically highly valued stock market which is very important to keep in mind.  We also have continued solid economic growth but this does not guarantee our highly valued market will not go lower near term.  The lines shared above will help guide us via the most important opinion of all:  the market itself.

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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