A Little Resistance

Feb 172012
 
 February 17, 2012

Stadion’s investment strategy is built on a foundation of trend following and technical analysis.  While we do not use chart analysis in our decisions to be invested or not, it is a useful tool we employ in our portfolio management process.  The chart below shows the S&P 500 from 12/31/2010 through 2/16/2012.  The red box outlines an area of resistance established early in 2011 and retested several times throughout the first half of the year.  As you can see, we are once again within this resistance band.  Typically at these areas, prices may have a difficult time “breaking through” this band to the upside. It is normal to see increased volatility or even a decline in prices as the market tests this level of resistance.

Should the market break through this resistance level, we could see the market rally up to the next level of resistance: the 1400-1415 range for the S&P.  If this happens, it would be the first time the S&P 500 has reached the 1400 level since June 2008.

But let’s not get ahead of ourselves! We cannot predict how the market will react to this resistance.  As the chart shows, this level was tested several times in 2011 and the market failed to break through each time. This resistance level is very strong. Therefore we will continue to manage our portfolios with our model driven sell criteria in place.  Should prices continue higher we will be well positioned for the rally.  However, if prices begin to wane, our sell criteria will tell us the proper time to take risk off the table, and to begin to move to more defensive allocations to protect our clients assets.

By Danny Mack – Senior Analyst, Portfolio Management

 

 

 

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. It is not possible to invest directly in indexes which are unmanaged and do not incur fees and charges. Past performance is no guarantee of future results. Investments are subject to risk and any of Stadion’s investment strategies may lose money. Any references to specific securities or market indexes are not intended as specific investment advice and should not be relied on for making investment decisions.

Breaking Out of Consolidation…?

Feb 022012
 
 February 2, 2012

On October 21st of 2011, we observed here that range bound volatile equity markets don’t last forever.  At that time, we were smack in the middle of a range bound, highly volatile market environment.  In the chart of the S&P 500 below, we have highlighted in red the large (greater than 5%) price swings that occurred between February 2011 and December 2011; including 22 swings in both directions with an average duration of just 10 days.  The greatest amount of volatility occurred between mid August and early October. During this time period, there were 10 of these price swings with the average duration being a mere 4 days each.  This is a classic example of a range bound volatile market.

At that time, many people in our industry were speculating that this type of volatility is the new normal. Of course that line of thinking completely ignores the fact that volatility is mean reverting. “Mean reverting” means that volatility levels will rise above or fall below the average but will eventually revert back to that average.

With 2011 in the past, it seems like someone turned off the volatility switch at the beginning of the new year.   As a result, we currently see a very nice trend developing out of  2011′s range bound market.  Large price volatility has abated for now.  (In fact, we have had 22 trading days thus far in 2012 and have yet to experience a single price reversal in excess of 5%.)  Of course we don’t know how long this current trend will last, but we also know it won’t last forever.  That is why we have a system that is designed to react to the ever changing market environment.

Click to enlarge

Brad Thompson, CFA, Chief Investment Officer

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. It is not possible to invest directly in indexes which are unmanaged and do not incur fees and charges. Past performance is no guarantee of future results. Investments are subject to risk and any of Stadion’s investment strategies may lose money.

Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money. Investment return and principal value of an investment will fluctuate so that an investor's portfolio may be worth more or less than their original investment. The investment strategy presented is not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Stadion's actively managed portfolios may underperform during bull markets.
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