Shorting the SOX to hedge index risk?

Continuing the series on identifying extremes, the attached “Weekly” chart show the price of Nasdaq Semiconductor Index (SOX) for the past 12 years.

My annotations highlight various times when the index is trading at ‘extreme’ percentage above its 200 day moving average.

If I don’t bang on about mean reversion, at least it shows that the probability of the index extending its move is limited.

This also makes the SOX a plausible security to short (much like the FAANGM stocks) if one is looking to hedge out index (excesses) risk.

October 28, 2020
by Rob Zdravevski

You won’t lose your job hedging at these levels

When the price of Gold in Australian Dollars trades at 50% above its weekly 200 moving average……it may be time for Aussie gold producers to hedge.

Similar to my previous work on the USD price,

…..the chart below shows the various percentages that the XAUAUD price is relative to its 200 dma.

If you combine the recent surge in the gold price with the historic peaks of the CME gold futures margin requirements, a long term overbought reading in the AUDUSD and my other extremes seen in Gold……

you’re unlikely to lose your job, hedging your gold resource and reserves at these prices.

Incidentally, when the CME hiked margins requirements on August 11th, 2020, the AUD gold price fell and closed at A$2,676.

Today, it’s trading at A$2,636. Much of a muchness, although mean reversion and probability can be unpleasant.

September 28, 2020
by Rob Zdravevski

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