The VIX was the Market's Buy-Signal
Markets have bounced hard after the fast fall of -15%. Gary Glover of Novus Capital explains how he's used the VIX to time his recent buying into the 5-Wave Bear Market that we're only one leg into so far.
] Large market falls in the man we called for a rapid and severe fall was Gary Glover from Nova's Capital. Good morning, Gary. How are you?
[00:00:07] Good, Chris. Good. Very rapid wasn't it?
[00:00:10] Very rapid indeed.
[00:00:12] We can get through it.
[00:00:14] It was a bit faster than anyone expected and faster than 10 percent fall, faster than anyone's ever seen before in the US. Now your portfolio is now up 7 percent versus the Australian market down 2.7. How invested are you at the moment?
[00:00:32] Well, actually, I just. I'm up to around about 40, 45 percent less than actually. So as of yesterday. So, um. Yep. Put it looked had sort of seven, seven sort of buys yesterday which I still only got hit on five of but. But yeah I just kind of looked over the weekend at some levels and loved sort of seeing prices come back to kind of walk by four zones. So. So I guess I just. Yeah. I think you're just going to keep it. Keep it basically. So are some opportunities definitely where we're popping up here. And I think that would jump a little bit ahead here. But that was actually the VIX chart was the one that actually gave me a little bit of confidence to actually to actually try and buy after that selloff last week.
[00:01:22] That's a good point. We're looking at this big shot here in your report. And you've always you've got the highlighted the peaks that we've seen in the last decade or so. You know, how does the VIX chart help us with timing in the outlook of the market?
[00:01:39] So, look, I just. Obviously, you know, fear was very high, obviously, last week after that fall. And so the the VIX is obviously is a measure of volatility. Of course, most people call it measure of fear in the market. But I just looked at Stockley every time we've had to sort of move over or ran sort of 45, 50, there hasn't been too many there. But the ones at that have had those big spikes, say, which was sort of highlighted when I went back and looked at the dates of those sort of spikes and then looked at the market actually in between there generally found actually that the market found that sort of short term low like within a week usually of the of that of that sort of spike in fear. And then it wasn't until maybe two or three months later that we actually went to new lows. So it is a bit of a warning shot. Oftentimes those I think, headline is that one, two, three, four, five, six there. I think five out of the six went lower later on. So a couple months later. But the reality is we're probably we generally see a low within a couple of days the following week or after that spike say somewhat a recovery might be to the, you know, six to sort of eight weeks somewhat. But. But generally sort of two or three months later where we're retesting that low. And in most cases going to a new low to three months later. So, yeah, it sounds a bit negative, but the reality is it's that they do provide a bit of a buying opportunity for the next sort of two weeks, I guess.
[00:03:21] Could be a mid to be down low. But it sounds like you've got waves coming into the market. So if you look at the Dow, the chart, you can hear of the Dow. How do you see waves playing out for that market?
[00:03:34] Yeah, so I guess, look, in the day we've had a pretty decent fall here. So three things I'll look at. I look at, you know, sort of symmetry and term on the market. So we've sort of seen that broadening pattern there, which I mentioned previously, obviously. So extend it quite a bit further out here now. But we look at sort of some symmetry on that and we're probably looking around that sort of 30 percent. And then, you know, if we just apply a bit of common sense here and we've had the longest from the strongest bull market of all time. Yeah, I know they've had a correction of 20 percent eleven in years. But to say it's just going to be a small one, it probably doesn't doesn't sort of suit that doesn't sort of fit in well with having been one of the bigger moves here. So we should expect sort of something slightly larger on on the scale ones. So to me, I've never seen this as being a 20 year. I don't believe it's going to be a twenty point twenty five percent drop. Please get me a big bigger than that. So somewhere around the sort of 30 to 40. Well, I think even like we can look at eighty seven and twenty nine.
[00:04:33] I mentioned those markets in the last month here because I think they're sort of comparable moves and valuations are comparable. So I think in those cases, those ones got whacked around about 45 percent. So pretty big moves. But you know, I think so Simon Crean, 30 and 40 is probably that's where. Yeah, that's our best sort of commonsense kind of best sort of guide.
[00:04:55] Then we look at sort of the patterns as well and looking at old highs and y4 zones and just sort of we are where we should come back to, you know, I think sort of somewhere between yeah, I really like the old high rate, eighteen thousand six hundred from a monastery. That's about thirty seven and a half and that'll be it. That'll be a beautiful life that can't be ended up coming back down there in the next three or four months.
[00:05:19] But the thing about bear markets is they they show the hand pretty early this that, you know, not good poker players.
[00:05:27] It's pretty obvious, you know. So I think that's a pretty decent move. Decent volume there. I know this Catalist TMC Corona, which no thinks about, be short. But they personally that's that's not going to be a short and short lived issue. And I think personally that's not the main issue here. I think there's just another debate that's in the market. So this was always going to come off here. It just, you know, maybe it's just gonna quicken the process.
[00:05:54] And definitely it's having it impacts on the S&P 500 as well. If you're looking at relative to 37 1/2 percent correction on the Dow, is that a similar can we see a similar level there on the S&P?
[00:06:08] Yes. So just trying to. Look, just trying apply a bit of commonsense here, so we look at, you know, anyone who studies sort of. Elliott Wave or dissaving, just general market corrections. The most common correction is for what they call like an ABC as a three way correction. Most common is for the A-League to equal the same league. Most common retracement is to come back 50 percent of the initial move. So we sort of stop making those sort of projections on where we think it might come, might come back to us, or at least exceeding the last low there, which is I think on the S&Ps around so big when we get a major new life. I see 23:00 as should be our minimum target then. And we're sort of projecting a first leg down, a bounce halfway up. And then again, just just a bit of a road map, so to speak. I think actually this might end up being a five wives structure down. This is sort of a lot of the markets have sort of done gone down the three and they've gone back to margin new high in three. So I think will actually come down and find so but that's the most common setup is the one that was highlighted there. But I guess, you know, what I do know is that these things take time.
[00:07:17] They're not going to roll over. One move as telecos is that you looking at the VIX and the fear that is figured to be a bit of a bounce in the market. So you have a bottom. So we're not getting five out of my seven sort of stocks yesterday. So I kept a pretty basic sort of things like CBA and Macquarie and Wesfarmers. I'm looking at other bits and pieces just sort of sort of reasonably safe. So there's a couple of stocks in there, a little less well known. But so the stocks sort off. But I like it. I'm just been trying to buy for some weakness as well. So jump into those. But to be honest here, I was probably the strategy that was probably the most useful yesterday was that the volatility was just through the roof and the market. So for CommBank arguments sake, I have a lot of portfolio koncz, but the stock, they look for 3/4 of a bounce you can actually write. I think the stock was at seventy nine twenty yesterday. You could write a 78. I will put and get through of those and find two dollars and ten cents. So you're effectively getting a 3 9 percent premium, maybe one and a half per cent under the market. So you've got a 5 percent break even on the downside. So what that means is if the market continues to go down, then at least we've got an entry 5 percent lower than yesterday as a break. Even if the market bounces, then obviously we just the most we can make is at 3 9 percent preem, which is still pretty good for the month. And if the market to stabilise then held the same thing down, that option would just expire as well. So it's sort of, you know, the volatility sometimes you got to use what's sort of given to a set of start ups with Macquarie and CBA, whether clients was selling the volatility there, because that was just Strom's was pretty extreme. I haven't seen anything like that since the GFC type of move. So but yeah, most most other Binelli concert is looking at buying some of those blue chips, just some bit of weakness.
[00:09:14] But we'll see how that plays in the context that you're talking about. A CBA put a couple of dollars out of the money getting around about $2 or so. How does that compare to a normal one? What would you normally be saying?
[00:09:28] Half of that. So yeah. So, yeah, I mean, even even today, the vol is looking at stuff that's probably only moved a little bit.
[00:09:38] And the balls probably the premiums are probably lost. The third just overnight. So certainly a fairly significant sort of spike in free yesterday and then obviously Kaluvia today. So. So there's a big difference. Yeah. So I like to a concert to sort of more vanilla distance just having to buy shares and sell them. So, you know, we'll probably just play a bit of a bounce here for the next three to four weeks and then the others or sort of you know, we used to use user conditions there a sort of yeah. It really gives you a bit of leeway if you're in if you're wrong. So for, you know, falls a day early, a flat might give me a bit more room there. End of the day I pick up a 3 percent premium for the month. That's that's that's still pretty tidy. So breakevens like $76 for Serbia. So I'm happy with that.
[00:10:30] Yeah, that's some good trading there. If we look to the Aussie market and apply some of the wife approaches, you're looking at and looking at some sort of levels. What do you see coming out for the exchange?
[00:10:45] So the big level there was actually the old was the 2018 hi there. So let's get around that sort of fix, right. So that's really the key to mind here. So I thought we might see a bit of support there. But look, it did go go straight through that. But really the thing about Mark, if you go back and look at quickly, if you look at the all-or-nothing exile, oh, come back and look at that historically, you'll see so many long tails now on our market. We you know, we panic with the best of them. And hope most of you know. So there's just you know, if you go back and look at the weekly charts and you to see plenty of long tails on your legs. So every time you see those extreme moves, they are you know, I'm always inclined to get a balkanized. So the main thing, there's always you finishing above that level for the weekly set up, which obviously looks like, well, so far, which we've done that, but it's still got a few more days to go through the end of the week. But I still expect to see a bit of a bounce there. So. Yeah, I would've thought we come back to at least 50 percent the range, maybe maybe 61 one, I might be the ideal level and then we'll come back in and do a do another leg down here. The only thing bother me a little bit about that is that most people are thinking the same thing at the moment. So a lot of you guys are a follow on line Twitter or whatever else. Everyone's kind of an ingrained field. That bear market started. That's the first leg. We'll get some sort of bounce. And then another like dancer never like it when everyone's on the same page. It just doesn't always come to fruition. So maybe this bounce will be longer than everyone thinks, will hopefully not short and everyone thinks but term. But yet some of the tips that's made a concerted effort on thinking the same thing at the moment.
[00:12:31] Well, it's a good point to take to list this week's note. You've got sort of words of caution even ended with. So how do you see that playing out in the next with the rest of 2020? From where we stand today, obviously, it's a long time to forecast.
[00:12:43] But aspects of the market that you're looking at here, look, it's looking like ones sort of trying to get their head around the Corona virus and stuff. And look, I'm no expert. I know definitely you tried to reach out as many people as I know, probably smarter than them myself on these matters.
[00:13:00] But the obvious things was obviously was that this is going to hang around so I can be cured here straight away. It's just going to have long term effects and it's going to take some time to sort this out. So it's going to affect some industries directly. So when things like travel, tourism, manufacturing, so they're going to have a very profound effect on those industries. So much I don't think this is gonna be solved in a couple weeks or a month. Yes, it's going to linger on. So, you know, those sectors are going to be directly impacted substantially. So you may know me. I'm. I'm looking for opportunities. Want to see things get sold, I say, but nearly everything tells me, don't don't go looking for the lows on those ones, because that's, you know, more than likely those are the sectors that will end it bounces will get sold off heavily. So I would be staying away from those the other two areas. Yeah, some sectors are gonna be indirectly impacted. So things like an obvious example, banking. You don't think banking will affect your career? We'll take the banking. But if we get some businesses that are struggling in those other sectors, then that'll come back to the increase in doubtful debt. So it'll have some impact on those sectors. And then there definitely some sectors won't be affected. Things like telecommunications, we're not going to stop business signs. So it's not going to impact him. It's not going to impact consumption, food. If anything, you know, we're already shown that people are already stocking up and probably spending more money on food and then things like funeral operators. We've been trying to buy a few funeral parties in the last few weeks. That sounds a bit morbid it now. But but the strategic thinking is that that's, you know. I mean, what with three thousand people a year on average die from the flu already in Australia. So we're if we don't get a nasty something nasty eventually over here, then those numbers will probably jump up quite a bit. So they will have it. The dollar flu has a big impact on that industry already. So if something's a bit larger than normal, then that will impact them, you know, and be a benefit.
[00:15:10] Then people will get on that strategically. But things like, oh, just wouldn't go. We'd be trying to pick bottoms and things like Qantas Flight Center, Webjet or travel those other companies. Just think this is likely to linger on. It's going to take a while here and more likely to look at these things. And in May, when the market's down, say, 30, 40 percent them and try and trying to pick these things. And the lows at the moment here is that they try. I'll be staying away from.
[00:15:39] Arguably, the three areas to look at focusing on two and three and definitely the ones that don't have a direct or indirect impact, possibly.
[00:15:49] Ideally, ideally you'd want to get the three. But then the reality is most companies where we sit are the two. So. Yeah.
[00:15:58] Well, that's that's a great take from the markets at the moment. Harnessing the volatility for profits in portfolios and utilizing the options and trading opportunity where you can. Thank you very much, Gary Glover from Nova's Capital.