The transition period between the end of quantitative easing and the first rate hike by the fed, is going to be a bit scary for today’s complacent investor. The VIX is very low and that is a bad omen for the new bulls. The herd investor is so relaxed and passive.

However, you would not want to bet on the short side until a major rollover happens, which does not happen overnight. Our trading bias is cautiously bullish in the meantime. Investors can expect mediocre returns and volatile trading and unless we get experience a swift and meaningful correction. We expect some short lived strength but not good enough for our appetite and style of trading.

Index Trader systems: We are still waiting for a short term cycle low by the end of the month to enter into SPY (XSP in Canada). Expect meaningful whipsaws in this market. When it comes time for us to go long again in this market, we will be using tight stops.

The Portfolio Systems:

  • US Equity Sector Portfolio: We cashed out of all our sector equity ETF positions on May 7th. In this system we track the movement and trading volume of 36 sectors of US broad market. Presently we have 25 sectors with positive volume in our algorithm for this system. The reversal happened when we went below 27. So we are parked in cash waiting for positive reversal. Occasionally we will inform you with some of our methodology without getting into the heart of our proprietary trading systems, especially when we are approaching market reversal points in our volume-based trading systems.
  • US Bond Sector Portfolio: Bonds are still positive. In this system we have 25 bond sectors positive, and high yield still is the strongest sector with the most volume. Reversal to cash will happen if we lose 3 sectors, meaning 22 is when we go to cash.