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- Low Volatility Stocks Have A Secret
This is the weekly version of The Prime Wave. The weekly is free for all subscribers, daily updates of the Swingex Index are reserved for paid subscribers only.
THE BIG IDEA
Last week, the S&P Low Volatility Index made a 20-day low for four days in a row (and nearly made it five). Well that’s nice, you say, but you don’t care about low volatility stocks. You are not interested in General Mills or Public Service Enterprise Group. That’s OK, but those stocks can tell us something about the near-term future of stocks you are actually holding.
First of all, what exactly is the S&P Low Volatility Index? It is made up of the 100 stocks in the S&P 500 with the lowest volatility, as determined by S&P Global. It has a cousin, the S&P High Beta Index, which includes the 100 stocks “that are most sensitive to changes in market returns”.
Last week, when the low vol stocks were going lower, we wondered what - if anything - it could mean for the rest of the market. And the answer is that it depends on what the high beta stocks are doing at the same time.
Here is our experiment: We looked for previous times where the low volatility index made a 20-day low for three days in a row and found a total 14 such cases. Then we separated them further:
8 times when the high beta stocks also made a 20-day low coinciding with the third consecutive low for the low volatility stocks
2 times when the high beta stocks made a recent low, but not on the same day as the low volatility stocks
4 times when the high beta stocks were not going down
The current condition falls into that third category. That’s low volatility on the left and high beta on the right.
What happens is when the high beta stocks make a 20-day low together with the low volatility stocks the whole market (the whole S&P 500) tends to catch a reasonable rally.
On the other hand, when the high beta stocks have refused to go down, which is the current condition, it eventually catches up with the market. For three of the four previous instances, the market was soft for the following week or two.
It is not a lot of data to work with. But there is something there. You might combine this with other information contained within this edition of The Prime Wave to form a plan for the coming weeks.
SEEN ON THE INTERNETS
Jeff Hirsch of Almanac Trader does alot of research on seasonal trends in the stock market. Recently he published a chart showing the composite daily movement of the NASDAQ market for the last forty years. That chart is copied below.
Hirsch points out a strong seasonal pattern covering the last three business days of June and first nine of July. This year that covers the period from June 26 to July 14.
He also provides the year-by-year details where we see that the pattern has been even stronger since 2010. Only two down years, and one of those was -0.1%.
Side note: Who knew that Tumblr still existed?
NUMBERS ONLY
8.9% | The notorious ARK Innovation ETF (ARKK) was up 8.9% last week and is now at a 52 week high. |
$73.84 | A barrel of West Texas Intermediate Crude is going for $73.84 and likely headed higher. |
-4.4% | The ”median” stock, as determined by Value Line, is down 4.4% so far in 2025. |
SWINGEX INDEX
Swingy says: It all adds up to nothing. That is an improvement over the -3 we had a week ago. Still, it is nothing to get excited about for now. | As of market close on 20 June 20250 |  |
See some historical examples of the Swingex Index in action here.
REWIND
Along with the daily value of the Swingex Index, we sometimes highlight stocks that could do well over the next 3 days to 3 weeks. This is a look back to 2-3 weeks ago to see how they have played out.
$BYND ( ▲ 0.29% ) - The shares of Beyond Meat traced out a textbook “rising three methods” candlestick pattern on June 2nd. It opened the next day at $3.10 and (almost) hasn’t looked back. BYND sits at $3.43 currently.