Registered Investment Adviser Caleb Lawrence
Tech stocks struggled late morning but recovered sending the major averages into the final hour with small gains on generally positive data. Manufacturing activity hit a 13-year high in September with a 2-point advance to 60.8 on broad based gains. The only negative was prices paid that jumped 9.5 points to 71.5 indicating significant price pressures.
Construction spending snapped a pair of declines in August with a .5% gain on a big rebound in non-residential and public construction. That said this series has managed little if any gain now for 10-months.
With the major averages dangerously overvalued the hedge find crowd has tried numerous other investments looking for return, so far, this year with little success. The latest investment dujour is to trade the VIX or Volatility Index something that has been an oasis of relative calm for some time now as the series tests all-time lows and the hedge funds bet it will go lower. Aside from being a very crowded trade the Volatility Index does live up to its name and shows a historical ability for very rapid and very large movements. Of course, if you’re on the right side of the fence this is great, but if caught on the wrong side the trade can become very costly indeed, as they say on the Street, “the trend is your friend, until it isn’t”. Something that has pushed net shorts to 3 standards of deviation below zero, a statistical extreme last seen in 1987 before the very sharp and quick market crash late that year.