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Showing posts from April, 2018

Volatility & Valuation - an ASX "chart check" for April 2018

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Things are certainly getting more interesting in equity markets when an Aussie can go to sleep on Wednesday night with the Dow Jones Industrial Average (a very poorly constructed index) dropping as much as 510 points only to wake up on Thursday and find it has recovered 741 points. Here's some charts we review when checking the market's temperature. Large cap indices are now down over the past 12 months, while small cap indices have also been in decline. Figure 1: Momentum (12 month trailing returns) Source: Thomson Reuters, Equitable Investors The ASX version of the VIX (an index that calculates the volatility implied by the pricing of index options by investors hedging or speculating on stocks) rallied late in March. We see more value in volatility measures when contrasted to pricing and Figure 2 shows the ASX 200 PE multiple divided by the level of risk - our "Risk on Index". This index will be higher when PE multiples are high and t
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