Segue News

Over the last few months we have seen world markets pulling back from post-Global Financial Crisis highs. I believe it is only a brief pause in a longer term rise. In the chart below I show the S&P500 index for the last 10 years and the corresponding VIX volatility index. The VIX index measures the cost of buying protection against movements in the S&P500 index. When the market expects the S&P500 to fall significantly the price of protection surges. What we are seeing is a market that does not believe the current pullback is anything to be worried about. The VIX is quite stable.

The chart below shows the Australian All Ordinaries Index since 1984. There is a long term rising trend channel since 1987. At times the market gets excited and pushes outside that channel. We are currently in the middle of that channel going sideways. I have also shown 6 month rates of return on the market follow a similar trend channel and we are currently heading toward the bottom of that channel. This increases the likelihood that prices will reverse direction and increase.

Based on historical information we can expect the market to have a longer term upward trend with short term adjustments within that trend. We are closer to the bottom of the longer term trend channel so we can expect improved market returns into the future as we track back towards the top of the channel.

Commentary by Segue’s Portfolio Manager