Limited Predictive Value

We noticed the VIX ETFs closed Friday at essentially the same levels as they were back in early December.  These are linked to time-decay of the underlying futures contract and, therefore, inherently decline over-time.  We had a theory that maybe the fact that they had not gone down even though the market has increased during this same time period may have some predictive value (maybe the divergent tension in the market will lead to a sell-off?).

We studied this pattern over prior timeframes going back five years – and reached the conclusion (so far) that there does not appear to be any useful correlation or predictive value.  So, we come back to our blog message from September 27, 2020 (excerpt below):

“We heard a podcast this week hosted by author Michael Covel that reminded us of some of the oldest and wisest perspectives provided by the then CEO of Exxon, Lee Raymond, when he was on CNBC in 1998 discussing the pending merger between Exxon and Mobil.  The commentator asked him what direction he thought oil prices were headed in the near-term.  He replied (paraphrased from memory) ‘We gave up trying to predict the direction of oil price moves a long time ago.  Instead, we have detailed strategies that if the price moves up to some extent, we execute Plan A, and if it goes down to some similar extent, we execute Plan B.’”

Regardless of new theories and (lack of) R&D findings, the recent market volatility reactively triggered the signals for both the VIXY and UVXY trades for the next market open so we will start next week with these hedging positions active (after the opening gap).

Strategy Updates

We will continue to evolve the weekly performance reporting of our blog as the data is available. For this week, we’ve created a table showing the YTD gains, max drawdowns and model correlation to the S&P 500.

More details about our trading activity can be found by registering on the Collective2 website and searching for Forte, Maestro, or Adagio Strategies. A running list of these email blogs and general information about Maestro Capital Research can be found at maestrocapitalresearch.com.

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