A Quick Contrarian Thought…

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The US equity markets are still rising since the start of 2013. However, our models have not been overly bullish in this environment.

Last week, bond manager/guru Jeff Gundlach made a presentation where he referred to the status of the markets as a “coiled snake ready to strike”.

You can see what he is talking about when taking a look at the VIX:

The VIX, which measures market volatility and is sometimes referred to as the “fear gauge”, is still at a very low level. With earnings season approaching and the anticapted start of debt ceiling discussions, I would expect higher levels of volatility in the market.

I also find interesting that there doesn’t seem to be a great deal of hedging going on either.

I like to look at volume levels of various inverse ETFs, such as the Proshares Short S&P 500 fund, to help gauge expected market direction:

Proshares short S&P 500 fund

These inverse ETFs are showing low volume levels, which may indicate that investors are talking a wait and see approach to the market — hoping that they will be nimble enough when the time comes.

Unfortunelty, scenarios like this usually mean the market will move violently in either direction as everyone reacts at the same time.

This is probably a good time to start hedging portfolios in case the coiled snake does strike…

 

 

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