Date: March 26, 2024

Volatility Is Depressed But It Should Be

My publishing schedule is a bit off this week and I am not sure when I will publish the rest of the week. My apologies.

This week is seasonally strong. Historically, there is an 85%+ chance that the week is up. Those are fairly good odds, but very hard to trade in a vacuum. I am glad our models covered our short trade and increased exposure to the S&P 500 and NASDAQ 100 into the down day on Monday.

Volatility as measured by the Volatility Index (VIX) remains depressed, but not yet at new lows given the epic rally in stocks. I have lots of people, especially the bears, bemoaning that the VIX is so low because of manipulation. That literally makes me laugh out loud. It’s so egregiously ignorant that I can’t even argue with them.

Stocks have been on one of those rare “creeper” trends when the market just inches higher day after day after day. When you have lots of exposure to stocks, it’s just so much fun sitting back and watching. When you’re on the outside looking in, it is very frustrating and painful. All you get are a few days down between 1-2% max before the bulls come right back to work. That’s where we are now and have been.

Eventually, and there always is, something changes and a sharp, swift drop hits when few expect it. Frankly, I thought the late comers would have been punished already. I guess that the masses were just so overly bearish coming in to 2023 and after a 50% rally, not enough threw in the towel. Hence why the market is creeping higher. Sentiment is now greedy, giddy and complacent. It’s bad, but the foundation of the market remains solid. That’s why I do not believe anything more than a 5-9% decline is coming to reset the table.

Mother Nature delivered 25-30 inches of all snow a few miles north of where we ski in Vermont. We got 18 inches. But, she was mean and mixed in freezing rain and heavy sleet. A few decent fresh powder runs for me, but overall, not a very good day.

On the other hand, the UCONN Huskies’ basketball teams are both heading the Sweet 16, men in Boston and women in Portland. I was so glad to be able to celebrate the women’s victory with my two favorite women on earth who won’t be thrilled that I am posting this.

On Friday we bought more levered NDX. We sold BASE and some ARCH. On Monday we bought levered S&P 500 and RYSIX. We sold levered inverse S&P 500 and some RYCIX.


Paul Schatz, President, Heritage Capital