How Lower Volatility and Cuts in Oil Production Could Affect the Market
In a recent blog post by Jay Soloff, the Lead Option Portfolio Manager at Investors Alley, he discusses the current state of the stock market and how low volatility and cuts in oil production could impact it. Soloff gives an update on the portfolio’s performance over the last two weeks and notes that the market is currently experiencing a low volatility environment due to the end of the fear of the debt ceiling and the trading doldrums of the summer.
State of the Market: The Current Environment
Soloff mentions that the SPX has broken above the two standard deviation upper barrier but that does not necessarily mean the stock will sell off as the bands are quite narrow. However, reversion to the mean is definitely a possibility in the next few days. Soloff believes that the market will remain in a low volatility environment until after Independence Day.
Soloff points to the futures market, showing a 72.5% probability that the Fed will do nothing to rates next week and notes that economic data has been mixed, to the point where the Fed can probably justify not raising rates directly. He mentions that the Fed is not done raising rates but is not in such a hurry to walk.
Moving onto oil, Soloff states that West Texas crude has been a bit volatile of late, and Saudi Arabia announced production cuts and the price of crude spiked briefly. However, he notes that where we are now in terms of price is not a factor.
What to do next?
Soloff suggests that if you want to know the best stocks to buy now, check out his new special report, where he gives his top three exciting stocks that could double or more in the coming year and excel in key areas of growth, sentiment and momentum.
Additional piece: How to Navigate Low Volatility Market Environments
As an investor, navigating low volatility market environments can be challenging but equally rewarding. Here are some strategies to help you make the most of these periods in the stock market.
1. Deploy a Covered Call Strategy
A covered call strategy is an options strategy that involves buying shares of stock while simultaneously selling call options on those same shares. This strategy allows investors to generate income during periods of low volatility where stock prices are relatively stagnant.
2. Invest in Dividend-Paying Stocks
When investing in a low volatility market environment, investors often look to dividend-paying stocks as a way to generate income. Dividend-paying stocks can provide investors with a reliable source of income, making them an attractive alternative to fixed income securities such as bonds.
3. Stay Diversified
During periods of low volatility, it’s essential to stay diversified in your investment portfolio. Diversification helps to mitigate risk by spreading investments across multiple asset classes, limiting exposure to any one particular investment.
4. Keep a Long-Term Focus
When investing in a low volatility market environment, keeping a long-term focus is essential. It’s easy to become enmeshed in the day-to-day fluctuations of the market, but investing with a long-term mindset can help mitigate the impact of short-term market movements.
Summary
In the blog post by Jay Soloff, he discusses the current state of the stock market, including how low volatility and cuts in oil production could impact it. He gives an update on the portfolio’s performance over the last two weeks and notes that the market is currently experiencing a low volatility environment. Soloff suggests that if you want to know the best stocks to buy now, check out his new special report. Navigating low volatility market environments can be challenging, but deploying a covered call strategy, investing in dividend-paying stocks, staying diversified, and keeping a long-term focus can help mitigate risk and make the most of these periods in the stock market.
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I am pleased with the way the portfolio has performed in the last two weeks. Of our current 8 positions, 6 are winners, one is at breakeven, and the other is a small loser. Several of the stocks have also been in an uptrend. For now, we’ll (probably) focus on smaller changes, like trimming or adding positions. We’re on an allocation of about 70% of our cash, which I think is reasonable in this environment. Of course things can change quickly, but I am happy with the mix of stocks we have in the portfolio at the moment. Let’s take a look at what’s happening this week for the S&P 500 (SPY). Read on for more….
(Enjoy this updated version of my weekly comment originally posted on June 8he in it POWR Stocks Under $10 Newsletter).
Market volatility has really tumbled since the fear of the debt ceiling ended with barely a whimper. We are apparently experiencing the trading doldrums of the summer where not much is happening in the stock market from a macro perspective.
You can see in the chart above, the SPX (S&P 500 Index) has broken above the two standard deviation upper barrier.
That does not necessarily mean that the stock will sell off, as the bands are quite narrow due to a less volatile environment. However, reversion to the mean is definitely a possibility in the next few days (just because of the law of averages).
Whether the market remains in this low volatility environment will largely depend on what the Fed says and does at the June and July FOMC meetings.
We have the June meeting next week, and so it won’t be a surprise to see a lot of nothing in the markets until after Independence Day.
The market continues to forecast a pause in rate hikes for June. The futures market shows a 72.5% probability that the Fed will do nothing to rates next week.
Economic data has been mixed to the point where the Fed can probably justify not raising rates (directly). Of course, they can achieve some of their objectives with their mouths open (for example, talk bearish about the market).
In July, futures show about a 65% probability of a rate increase. That follows the line of the dominant narrative.
It has become apparent that the Fed is not done raising rates. However, at this stage, they are not in such a hurry to walk.
Moving on to oil, West Texas crude has been a bit volatile of late. Saudi Arabia announced production cuts and the price of crude spiked briefly. However, it is back down to around $70 a barrel.
Keep an eye on oil as it could be a leading indicator of the economy (and therefore stocks). A price that is too high or too low is generally not good for stocks (for different reasons). However, where we are now in terms of price is not a factor.
As mentioned above, volatility, as seen on the VIX chart below, has plummeted in recent days. The price is now firmly below 15, which is often considered a low volatility regime.
While we could see a short-term spike depending on the news cycle or the Fed, I expect volatility to remain relatively low.
The summer months tend to be slower in terms of realized volatility (the actual movement of stocks). Therefore, implied volatility (looking forward) also tends to decline. That is at least part of why the VIX is so low right now.
Let’s take a look at the portfolio.
What to do next?
The above comment will help you appreciate where the market is headed. But if you want to know the best stocks to buy now, check out my new special report:
What gives these stocks the right stuff to become big winners, even in this challenging stock market?
First, because they are all low-priced companies with the most upside potential in today’s volatile markets.
But even more important, they are all Top Buy stocks according to our coveted POWR ratings system and excel in key areas of growth, sentiment and momentum.
Click below now to check out these 3 exciting stocks that could double or more in the coming year.
All the best!
jay solooff
Chief Growth Strategist, StockNews
Publisher, POWR Stocks Under $10 Newsletter
Shares of SPY were up $0.19 (+0.04%) in after-close trading on Friday. So far this year, SPY has gained 12.84%, versus a percentage increase in the benchmark S&P 500 index over the same period.
About the author: Jay Soloff
Jay is the Lead Option Portfolio Manager at Investors Alley. He is the editor of Floor Trader PRO Options, an investment advice that offers you professional options trading strategies. Jay was previously a professional options market maker on the CBOE floor and has been trading options for over two decades.
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