08.06.2022
Risk Appetite & Defensives
One of the more striking features of recent price action has been how comparatively muted VIX has been.
Qi de-trends & vol adjusts macro factors looking at them in z-score terms. Having spent most of 2022 above trend, the chart below shows VIX is close to reverting back to its long term average.
The chart also shows VIX can send sustained periods below trend – periods when vol targeting strategies could significantly ramp up risk & thereby provide sponsorship for equity markets.
Qi de-trends & vol adjusts macro factors looking at them in z-score terms. Having spent most of 2022 above trend, the chart below shows VIX is close to reverting back to its long term average.
The chart also shows VIX can send sustained periods below trend – periods when vol targeting strategies could significantly ramp up risk & thereby provide sponsorship for equity markets.
However, for those who see VIX back near trend as a sign of complacency, this chart will prompt a search for defensive trades. To that end it is worth noting RETINA™ has just flashed a bullish signal on US Health Care.
The chart below shows US Health Care is now 1 sigma (3%) cheap to macro. That FVG has opened up because the recent fall in spot has occurred despite macro fair value moving sideways.
The chart below shows US Health Care is now 1 sigma (3%) cheap to macro. That FVG has opened up because the recent fall in spot has occurred despite macro fair value moving sideways.
In RV space, XLV vs. SPY is not in regime & the Valuation Gap is ‘only’ 0.6 sigma (2.3%), but that is the first negative FVG in 2022. Won’t appeal to everyone, but food for thought for those with a defensive mindset.
