Market Rotation: Individual Plays vs. Range-Bound Indices

We can see little argument to the fact that the major indices are in a range-bound pattern with geo-political news taking precedent over corporate earnings that continue to be the driving forces with the extreme but welcome Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term for our traders and clients at Tradeview.

Being sensitive to the fact that our colleagues and fellow traders have index funds that swing more wildly than individual stock positions we continue to capitalize on the big percentage moves of individual plays that show relative strength/weakness as compared to that of the markets.

With the S&P futures swings, albeit intra-day or overnight “follow thru”, our traders focus on stock picking while gauging their positions against these moves. We understand trading the SPYs, futures and/or ETFs present a tremendous amount of opportunity, but all of our traders keep their indices close to the vest as Greece, the volatile currency markets, Swiss news and with Russia-Ukraine offering a cease-fire this am, individual stocks like PIR/TSLA/ BIDU/ have had more consistent range and follow thru.

Why would we take a chance and try to pick a direction in the market when these wild moves give you a GREAT chance to see how stocks with earnings and fundamental news are acting.

Our last article published last week stressed that we are playing the rotation thru the various sectors (gold/oil/cyclical) keeping in mind that the Dow/Nasdaq and Russell (IWM) are all hovering near all-time highs. Truth be told, we had EVERY opportunity for a correction or modest pullback with the volatility.

Granted the range we are in with this price action is cause for concern and that something seems likely to give but we must admit that the path of least resistance is up. And have no ego when it comes to making the right trades. It is what it is. You can measure VIX/put-call ratio/advance and declines etc. but as we say, everyone has an opinion and we will leave that to the experts. We accept the volatility but have cut our overnight exposure dramatically and find it almost irresponsible to be holding a lot of positions overnight (except AAPL …just to be involved in the pop-culture phenomena).

Our point here is that with many stocks staying “hot” for days we will continue to play stocks that have range, high relative volume and good price action. Since the end of 2014, the SPYs, arguably the most common ETF as a benchmark, have had a general range from $200-$210, a 5% range over the past 3 months but individual plays have had the same % move within two or three days, so why take on more market risk than necessary.

We will stay with the trend but after earnings season ends and if and when sensitive news overseas dissipates, it is still early to tell if and when the dust settles if the market takes the buy the rumor/sell the news approach, but until then we stick with our game plan and will adapt when the moment presents itself.