Volatility Continues on the ASX and I’ve been Called
Sheesh! Is anyone starting to get motion sickness yet? The volatility on the Australian stock market is absurd. This is Mr Market on fricking steroids. I believe roid rage is the popular term these days.
It’s no wonder we’re experiencing such heightened volatility right now as a full scale war has broken out between fear and greed. I was going to say optimists and pessimists, but as I believe optimists and realists would be more accurate I decided to wimp out and go for the cliched fear and greed. Greed has jumped up off the mat after fear landed what I thought may have been a knock-out blow on Friday. The All Ords are currently up 2.6% and the S&P /ASX 20 is doing even better up 3.1%. Absolutely ludicrous! Though like a kid at a carnival I imagine traders are all smiles and busy jumping from one ride to the next.
The Australian and US markets are currently fairly to overvalued so it is doubtful that over the long term that buying now will be a highly profitable endeavour. However, markets do what markets do and that all too often means go further that anyone imagines as they stray a long way from fair value. I continue to sell into this rising market. Just as these waiters on an Indian train need to be careful taking ownership of that tray, buyers in today’s market need to be very careful with their stock selection.
Over the weekend I was called out of 60% of my then two largest holding, Vertex Pharmaceuticals Incorporated (VRTX) and 3M Co. (MMM). Vertex weighed 75% of my equity positions in my high conviction account and as I’ve commented I’ve been selling $35 calls on it. That account is now 54% in cash and I’m in no hurry to buy, though will consider selling more calls or even buying some puts.
MMM was a tougher call. It was my largest holding and I wanted to trim it despite MMM being a Zack’s number one pick. If and I’m almost confident enough to say when it goes under $70 again I may consider selling Puts. I was originally put MMM back in December and admit there may have been a touch of price anchoring going on as I got to sell calls at my put costs. This MMM 35 year chart from Mike Klein highlights the upside in MMM once normal programming is resumed. The key word in that sentence is of course “once”. The MMM sale raised the cash in my, hmmm, should I call it my ‘non-conviction account’ or ‘my less-convicted account’ or the ‘why do I bother owning these account’? I’ll call it my main trading account and it now sits at 12% cash.
I’m in no hurry to raise more cash as those cash percentages above do not include my margin that is earmarked for investing as part of my 50-150% investing strategy. If we get a retest of the March lows then I’ll have plenty of ready cash to deploy. My current plan is to use the cash in my share accounts on the way down and the margin if we get to ludicrous lows once again or when a new bottom appears to have formed. As always I ease in. If the market keeps heading higher then I’ll keep selling. Heck I may even break my 50% low side in equities.
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