Risk Management Time: SP500 Levels, Refreshed...

The thick red line in the chart below highlights the most important duration (the intermediate term TREND) in our 3 duration model: TRADE, TREND, and TAIL.

As a reminder, our risk management framework doesn’t try to solve for every investor’s individual duration. However, it does seek to absorb the stresses considered by 3 large constituencies of investors across the following durations: short term, intermediate term, and long term.

Currently, our risk management levels are as follows:

1. TRADE (immediate term, 3 weeks or less) = 1125

2. TREND (intermediate term, 3 months or more) = 1096

3. TAIL (long term, 3 years or less) = 969

The red line at 1096 is exactly that – a stop sign (or a  wait and watch line). A breakout above that line puts the TRADE line back in play up at 1125. A breakdown below it puts the TAIL line of risk in play (-11.6% lower).

Obviously you can drive a truck through this range of , but that’s the point. That’s why the VIX is breaking out from both a TRADE and a TREND perspective right now. The next move, above or below 1096, is going to be big.

If 1096 doesn’t hold (on a closing basis), first short term line of support between 1096 and 969 is the dotted green line down at 1076.

KM

Keith R. McCullough
Chief Executive Officer

Risk Management Time: SP500 Levels, Refreshed...  - spkm