CASH IS KING
To say that the stock markets have been somewhat volatile would be the understatement of the S&P year. The S&P 500 hit a high on the 20th of July 2015 and hit a possible low on the 20th of January 2016 which is a decline of 15%. From the 4th of January 2016 the S&P 500 went down 11.3% on the 20th of January and then raced up 7.44% on the 1st of February 2016. Year to date the S&P 500 is down 6.5%. The markets have had huge fluctuations, up 2% one day and then down 2% the next. Looking at the returns you would think there is not much volatility in this market but it is tough to predict where the next move might be. The volatility index VIX has not shown as much movement as we had during August 2015. What is this telling us? The market is heading for the exits calmly? Markets have been moved in tandem with oil since summer of 2015.
During these tumultuous market movements the best thing to do sometimes is to wait for market opportunities in cash. We do not want to fall prey to “Value Traps”, “Dead Cat Bounces” or worse a “Suckers Rally”. As a trader this is a tough thing to do, sit on my hands and wait as I want to put my money to work. In the back of my mind I hear the clichés “Cash is a position” or “Cash is King”. These clichés come from market truths that many traders have learned the hard way. If you were in cash from the beginning of the year till now you would have outperformed the S&P 500. Let that sink in for a minute… with these current markets it might be best to wait for the opportunities to come to you rather than trying to make opportunities. The market needs to give a clear direction either we are going down or we are going up but it is not clear at the moment where this market is going. There will be great money making opportunities but for now let us see where this market is going and use the trading tools we have for either a bear or a bull.