An Explosion In Volatility Rocks The Stock Market – February 2018 Newsletter

An Explosion In Volatility Rocks The Stock Market – February 2018 Newsletter

After hitting a new all time high at the end of January the S&P 500 and stock markets worldwide have had an explosion in volatile that rocked the markets. On Friday the S&P was already down 12% until a late day furious rally. We know that since the US election it has been straight up for the stock market with less than a 3% correction for over a year. Now, a 12% downdraft in two weeks!

The Model/Method MM, my proprietary stock market forecasting tool, did not like the action. Being on a Buy Signal since July of 2016, it didn’t take long for the MM to become upset. I noted in previous letters that although the stock market was setting new records daily, the MM was not all that impressed. While it had been extremely high just before the election, as time has moved forward there has been a slow but steady deterioration of the MM. When volatility exploded a few weeks back, the MM headed south quickly.

Looking back a long time I could find only one other instance of a downdraft off an all time high as sever as this one. It happened in 1928 some 90 years ago. The increase in volatility on this decline also hit a record more than doubling in one day. On 3 days during the present decline the number of stocks advancing vs. declining was about 1 to 10. As bad as this is there is a sliver lining at least in the very short term. When a washout approaching this one happens, the market usually rebounds strongly for a while. So I am expecting it now.

But what about the intermediate and longer term? As mentioned in other missives, the stock market does not make big tops… Model/Method has generated only 5 roundtrip signals since 2000 and has avoided all the bear markets since then.  With just a few trades over 18 years the returns have been 473% not including over 30% in cash dividends

For more on the MM

To read the rest of the newsletter please click here for membership information.