Complacency Is A Bug...Volatility Is A Feature

Good morning…

I dod not plan on writing this morning but when the markets are volatile I find myself doing a lot of extra work so I thought I would share what I am seeing.

I have written about the rising $VIX here the last few weeks and a lot of readers are asking me how I use it.

I don’t really.

Most of the time it means nothing.

I use it as an alert along with other sentiment gauges like that on Stocktwits.com. On Stocktwits I have been seeing complacency for months. The $VIX has been 12 and below and that has been fun.

The semiconductor Index - the poster child for the AI hype led by $NVDA has been 20-30 percent above it’s 200 day moving average for months. This kind of extension is rare. Of course the same media breeding fear the last few months has been gushing about AI and $NVDA

Now here we are quickly at the 200 day moving average which is a much better place to initiate some buys and all you will hear about is a crash and if the fear persists for a few more days a ‘CNBC Markets In Turmoil’ special.

I like to say if you are going to panic, panic first. To panic first you need to be raising some cash when the $VIX is 12. You panic a bit when leading indexes are 20-30 percent above their long-term moving averages. It is hard to do this because because stocks are going up and breakouts are a plenty. The markets do not care how you feel. Complacency is a bug in humans. Volatility is a market feature that squashes human complacency.

With respect to fear…

Fear flashes and fades quicker.

We are in that flash phase right now and hopefully it fades relatively quickly. Nobody knows for sure.

I have seen these enough to focus on doing the opposite. Firemen run into a burning building. The few times a year when the $VIX flashes I am trying to be that fireman. I am looking to deploy cash when the $VIX is spiking over 20.

To do that I am always doing Momentum Monday, Trends With Friends, tracking prices and building lists. Most of the time that means doing nothing but watching and discussing and holding and making sure I have some cash for the inevitable spikes in fear (The $VIX).

Just last week on Trends With Friends (we tape Tuesday AM), the market was calm. By Friday, the semiconductor index had it’s worst 2-day return since the COVID panic:

What could it be?

I have been saying that the headlines will get worse and worse no matter what the market does because of the ‘click’ economy so maybe everyone just started to ignore the headlines.

We know Iran is getting more aggressive directly. They seem upset that their proxies were getting all the hate glory.

We are seeing that Trump will have a tough battle with Kamala.

We are seeing fast hot air coming out of AI and semiconductor stocks:

We saw another Intel implosion…Intel is the Joe Biden of tech/semiconductors

Warren Buffett sold half his Apple

What we saw Friday…

Only healthcare, gold and consumer staples held at all-time highs. Real estate stocks hit 52-week highs.

Other leaders like Goldman and private equity stocks pulled back a quick 10 percent.

Credit Spreads blew out…

The small caps had been the subject of ‘the great rotation’ myself included, but have quickly become a ‘now or never’ moment again.

So here we are…

I do not know if this correction is the beginning of something bigger or another great opportunity to buy the dip. I am spending a lot of time this weekend weighing some bets and thinking about when and where to deploy some capital.