by Michael Tarsala, CMT
Here is one of the strongest arguments I've seen recently on why the market could pull back and it may be time to get more conservative with investments:
Source: The Big Picture
Above is a chart from Barry Ritholtz and The Big Picture, care of big-time market technician Dick Arms. If you don't know of him already, Arms is a legend in technical analysis. He has spent about five decades in the markets and is known for his six top-notch books, as well as major advances in the field including The Arms Index.
The chart displays the Dow Jones Industrials at the top, then an inverted chart of the VIX below it.
The VIX is now between a reading of 14 and 15. Reaching similar levels has marked eight different market peaks since 2008.
A very low VIX (remember, it's inverted) often gives the market little room to run. Think of volatility as fuel for a fire. Low levels of volatility (which shows up as a high on this chart) burns off all the market's fuel, leaving it susceptible to increased volatility and declines.
The good news is that there are many potential strategies to deal with a potential stock market selloff. It may involve selling some economically sensitive stocks, adding more exposure to low-volatility investments, or perhaps even investments in long-short models that have the ability to benefit from a selloff.
Are you positioned for what happens next?
Feel free to give us a call at Covestor, at 866-825-3005, extension 703. We're here from 9 to 5, Monday through Friday, Eastern. You can ask for Bhargav in our New York office. He can provide you with a lot more information about the equity investment models we offer, and help you gauge if one of our options might be right for you.
If you do choose Covestor, we set you up with your own separately managed account; your money is separate from everyone else's. Other separately managed accounts in the industry carry extremely high minimums – some cases $1 million-plus. Yet we can get you started for as little as $30,000.