Chart Explanation:Blue: Beta index (OSX, SOX, HUI and XBD)
Black: VIX Index:
Takeaway: Since 2003 as volatility declined; beta related themes appreciated.
Further Thoughts:
Equally weighted beta index suggests that oil services, brokers and gold stocks have all contributed to significant upside move. These groups have outperformed other areas in the marketplace. But leadership will be challenged.
We are at key junction as volatility remains oversold and due for recovery. Chart suggest in the upcoming months shorting beta themes might be worthwhile. OSX has shown recent declines tied with Oil weakness in the past few weeks. Brokers have had a sharp run up and benefited greatly in the low interest rate environment. Earnings were positive, but not sure if higher expectations await. Plus various strategies in the marketplace might be too crowded with similar tactics in minimizing risk. Therefore, beta index glory days of outperformance are worth a sharp look. As liquidity is drained out of the marketplace with rising rates from central banks, beta strategies risk or at least the game might change. Any change leads to uncertainty - not to be confused with general risk. Uncertainty caused turbulence which can result in a rising VIX - As commodity related themes reshuffle their outlook and hedge funds restructure their strategies – this can cause a shift in the market place.
