Headley Tells CNBC Viewers to Buckle Up for a Few Months Come August

Posted by jbrumley on July 24, 2017 2:11 PM

If you like the lack of drama and relative consistency the market has served up of late, you might not want to get used to it. Once July becomes August we could see some turbulence kicked up, and do stocks more harm than good.

That's the way BigTrends.com's lead analyst and President Price Headley sees it anyway, as he explained on CNBC's The Rundown this past weekend.  He explained of the persistently low Volatility Index:

"Usually in the short-term low volatility is good for stocks. It's one of those strange things where it correlates very positively with the next couple of weeks being pretty firm for stocks. But, I think once we get past July batten down the hatches and expect volatility to increase. "

Headley went on to point out the Volatility Index (or VIX) is actually below 10, and has been below 10 for some time now. In times of fear it can get to 20 or even 30, setting up a good chance to see volatility at least double over the next three months as part its normal ebb and flow. He's expecting some bumps in the road for stocks... the normal stuff that one would expect with your usual wave of profit-taking.

He concluded "If stocks aren't going to go up on really good news, then maybe if we get some bad news -- maybe geopolitical concerns or otherwise -- I'm concerned that we're going to get some kind of shock to the system in the third quarter, so I'm preparing for the Volatility Index to spike up."

Such a pullback is going to hurt some areas more than others, and may even help a handful of sectors that have otherwise been lagging. The BigTrends founder goes on to say "I'm looking for some rotation. Hopefully we'll see some into other sectors... particularly energy, which would be nice if it came along for the ride,  but certainly financials are one of the go-to areas along with healthcare here while tech may be sue for a rest."

Nevertheless, Headley remains concerned in the short run. He observed:

"I think you're seeing a little bit of a sell-on-the-news phenomenon, with blowout reports from Microsoft (MSFT) late last week. JPMorgan (JPM) just way above its estimates. But, these stocks sold off on the news, so I'm getting concerned that we're starting to see more of a fully valued type of market here. And, it fits with the time of year where we might be due for a little bit of a seasonal slowdown. The third quarter is usually weak for technology in particular, so I'm starting to play on a rotation away from tech.

You know, the top ten percent of the names on the S&P 500 have driven about 80% of the market's gains this year. That tells you that things are maybe a little bit too thin in terms of how we've been trading."

Too see a clip of the entire interview, CNBC.com has it here.

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