The holding pattern continues as we are sitting in our full safety positions watching to see if this market falls off a cliff or tries to recover. One metric that I recommend people put on their watchlist and pay attention to is the VVIX, a measure of the expected 30-day forward volatility of the VIX index. Since the VIX index is a measure of the expected forward volatility of the S&P 500, the VVIX is essentially the “volatility of volatility” or just vol of vol for short.
Historically any values over 100 are starting to flash warning signs. We’re over 115 right now so market participants are definitely on edge.
By itself the VVIX is just a possible early warning signal, but when taken together with several other indicators it can be very instructive. Our Conservative Vol strategy reacts to signals and moves to cash a little quicker than the Aggressive Vol strategy, and the VVIX is one of many reasons why we sold our ZIV position on June 19th and moved to cash. Since then the ZIV is down another -9% so paying attention to volatility signals which are more forward looking is a great way to reduce risk.
The VVIX and volatility in general typically don’t stay at these elevated levels for very long so we can expect to see some sort of resolution soon. Most of the time that resolution is a fading of volatility back down to normal levels. However every once in a while it’s an early warning sign of something much worse on the horizon so we’ll wait to see which one this is.
* On a side note I had a few people ask so for all the newer VTS community members here are the two best places to follow my work on social media:
YouTube: (click the red “subscribe” button)
Twitter: (hit the blue “follow” button)
Current VTS Total Portfolio Solution Allocations
10% VTS Conservative Vol Strategy – Optional replacement for lower risk tolerance investors
10% VTS Aggressive Vol Strategy – Optional replacement for higher risk tolerance investors
Temporarily paused: VTS Tactical Volatility Strategy
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