A flash crash is upon us. The lowest I’ve seen the DOW drop so far is -1500 points and the bounce came quicker than I could snap a screen shot for this blog posting! What we are experiencing is a Volatility Expansion from several factors.
the #1 reason for today is the short covering of those traders who’ve been short the $VIX forever. They are finally paying the piper after months and months of continuous profits from a very high risk trade.
the #2 reason is the result of Institutional selling; Leveraged hedge funds who received margin calls. Mutual funds selling their big winners and Pension funds raising cash.
What is The individual investor to do? I’ve personally been holding a large position in cash for several months. I’m putting some of the stash to work today. I am purchasing the Hotchis & Wiley Value Opportunity fund (HWAAX) which is transaction free at Schwab. I am also purchasing the Oakmark Global Select fund (OAKWX). These are funds that have been on my watch list for a long time. I am buying a 1/2 position today and will add to these holdings as the market continues selling off.
We are in a short term market panic but this is NOT the time to panic. Let the institutions panic and profit from this by exploiting this opportunity.