How To Trade This Market Chop and Volatility

Takeaway: Fade oil-related rallies and stick with longer-term calls on #GrowthSlowing & #LowerForLonger (rates).

How To Trade This Market Chop and Volatility - Volatility cartoon 09.02.2015

How should investors trade these volatile markets?

 

Fade oil-related rallies.

 

That's the latest from our Macro team in a note sent to subscribers this morning. Here's more analysis:

 

"Chase the wabbit – U.S. equity futures whipping around on what Oil does and that isn’t going to do anything for the economy obviously (volatility = bad). The immediate-term risk range for WTI is 30.65-38.18 so the way we would deal with this is fade Oil related beta moves at the top end of that range."

 

How To Trade This Market Chop and Volatility - wti risk range

 

Outside our immediate-term trade advice, our longer-term calls on #GrowthSlowing and #LowerForLonger (rates) still hold.

 

But how do you play it?

 

"No matter what oil does, our favorite S&P Sector remains Utilities (XLU) which ramped another +1.0% yesterday to immediate-term TRADE overbought at +10.5% year-to-date as our favorite Sector to be short remains Financials (XLF) which led “ex-Energy” losers yesterday -1.6% to -8.1% year-to-date."

 

How To Trade This Market Chop and Volatility - xlu v xlf ytd

 

To be sure, it's been a rocky three weeks. Hedgeye CEO Keith McCullough wrote as much in a recent Early Look:

 

"Of all the bad weeks I’ve had since the US profit cycle peaked (when US and Japanese stocks peaked in July of 2015), last week ranked right at the top of them.

 

And, to be clear, since I was telling you to buy the Long Bond at 2.53% on the 10yr (in July), I’ve had some really bad weeks. But you’ve had to be able to endure those to have been right for the last 8 months."

 

What does the score look like since July?

How To Trade This Market Chop and Volatility - tlt v s p ytd

 

Reality check ... bear markets bounce. Economic gravity prevails.


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