Market jitters

by Wayne Ferbert on January 27th, 2014

The market jitters are starting to settle in – and it is creating some interesting market dynamics. Thursday and Friday last week were down big – both days. Today really set up for a bounce back but we are not getting it. The pressure continues – although in a muted way today.
 
So, what do we see in the market?
 
A slight uptick in volatility. It is a slight uptick now – but if this sell off has any lasting power, it won’t stay that way. Volatility will spike and the price of all options will go up – your cost of protection especially. I hope you have been following our advice since November and looking to lock in some attractive put protection while the cost to hedge was near historic lows.
 
A flight to quality. Treasuries have trended up for the last 3 days and hi-yield and junk bonds are trending down. Sell-offs spook people and they often go to safe havens while waiting out the market turmoil. If the pull back continues, I would really like the purchase of HYHG – the hedged Hi-yield product from ProShares. I would expect the product to out-perform when the market gets closer to its equilibrium level.
 
Apple will impact markets. Apple has earnings after market today. In fact, one some level, I think that is why the market move today is somewhat muted. Apple is a meaningful part of the NASDAQ and S&P 500 – and a barometer for many supplier firms and the technology industry. After the market close today, Apple will report its numbers – which should create a fairly interesting move for the markets either way this week.
 
These three points above are all short-term and tactical. At Buy & Hedge, we are long-term investors. These moves are only material to our entry and exit approach – not the strategy itself. Be hedged – and pay as little as possible for the protection from the hedge. Always. 


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