"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
-
Sun Tzu

Wednesday, November 23, 2011

Decling Volatility: A Bullish Sign?

The market has lost abound five percent so far in November. Even though I more or less declared myself a bear with my prior post, I have to recognize some potentially positive developments: volatility has been declining in recent weeks. The situation reminds me of the 2010 summer decline:




The July - September bottoming process was accompanied by declining volatility as can be seen by looking at the Average True Range (ATR) and the VIX. The situation is similar now, the VIX could decay a little bit faster for my taste. In any case, I would be very careful shorting the market at this point.

As for the Covestor Model Portfolio, I'm currently short XLF and DB. I'm not really comfortable with these positions, so I will close them soon.