While stocks are near all-time highs, technicals suggest a pullback could be near. Bob Lang, Contributor, TheStreet Pro, explains how to prepare your portfolio for downside.
Transcript:
CAROLINE WOODS: I am joined by Bob Lang, a contributor at TheStreet Pro. Bob, Thanks so much for joining me here at the desk.’
BOB LANG: It’s great to be with you, Caroline.
CAROLINE WOODS: So I want to get your market views market up against some trade developments right now. 25% tariff on Japanese goods, Korean goods. August or the July deadline is now August 1st. Some near term pressure, but overall the market’s been doing a good job of shrugging off a lot of the trade uncertainty. How big of a risk are tariffs right now?
BOB LANG: Well I think if you go back to April 2nd Liberation Day, Caroline, and you realize that the market has been reacting like with a snap on every news piece that’s been coming out, whether it’s new tariffs coming out, whether it’s a push out for 30 days or 90 days or whatever the case may be, and the markets have been responding to that news in kind, either positively or negatively and as that has been happening, we’ve seen the volatility index dropping sharply each and every day. And it’s right back to where it was Caroline back in late part of March. And as you recall back in on Liberation Day and the volatility index rose all the way up to 60% which is actually on record, third highest it’s been since it’s been around. You go back to 2009 when it was hit about 90% And then actually, if you go back to COVID was actually a bit higher than that at about 92% So these were some pretty elevated levels. And when we see volatility rising like that, we see market players starting to sell that volatility. What they’re doing is basically selling the news and saying that the news every time it hits is not quite as violent as it was the first time around. Let’s call it like an earthquake with a whole bunch of aftershocks right after it. But I think going forward right now, I think what’s dangerous right now is that volatility has come down so far, that people have become very complacent about news, and we really don’t know exactly how trade policy is going to work out. We’ve seen news coming out every single day, new stuff coming out, deadlines being extended, that sort of thing. But we really don’t know how things are going to unfold over a long period of time. And that has me a little bit worried.
CAROLINE WOODS: So a VIX at 18 means that investors are too calm right now would you say?
BOB LANG: Well yeah. The rule of 16 here says that the volatility index is telling you that the market says the is going to be rising at about 1% over the next 30 days. That’s not very much. Right but we have a lot of volatility in between. Could go up a lot, could go down a lot. But the market is telling you that the fear is just not there about something happening. And really frankly, we all know tariffs are going to hit eventually at some point in time. But is it going to hit in a way that is going to be disruptive to earnings. And that’s really the question that investors have right now.
CAROLINE WOODS: We’ll get into the charts because I know you look at the technicals, but when you think about the fundamental picture. Do you think it’s easier to find cracks in the rally or easy, or to find reasons of strength?
BOB LANG: Well, certainly the last six weeks or so, Caroline, we’ve seen the markets rally sharply up to new all time highs. And frankly, great months of May and June back to back tells us that there’s a lot of momentum coming into the markets, into the summertime and July being one of the best months of the year performance wise for the Bulls. It’s a great setup for more upside going forward. However, I would tell you that moving into all time highs before we’ve had any results, there is a great, also a great setup for a sell the news event. What does that mean. Basically selling the news after companies come out with some good earnings and stocks have run up 50, 70% Look at names like Meta and Microsoft. A couple of names that we hold in TheStreet Pro portfolio. These names have gone up quite significantly over the last six weeks, and certainly, who could blame an investor for wanting to take some profits after they come out.
CAROLINE WOODS: So as you think about earnings season, which is approaching, do you think that will ultimately be a positive or negative catalyst for the market. Or could it be that the sell the news event that you’re talking about?
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