Concern! If there is one major theme fast approaching investors and traders as we blast through record levels for the major U.S. indices it has to be concern. Concern will rear its cautiously optimistic head this week as several major events will play out in the public limelight.

• The testimony of James Comey
• The European Central Bank meeting
• The U.K. election, called by Prime Minister Theresa May
• Impact from the weekend’s UK terrorist attacks

With U.S. equities continuing their yearlong rally into early June, a hiccup in the rally may come to pass this week. European Central Bank leaders may find themselves forced to change some of the language in its policy statement. While nothing is expected to change with regards to the ECB’s easing policy the language may change because of the recent run up in the euro, up nearly 1% in the past week and to a seven-month high. The ECB has consistently stated that interest rates will remain at its current level or lower. However, due to the run up in the Euro recently, the “lower” portion of the central bank’s statement may be dropped. This is something that could adversely affect European equities in the short run. That affect could also mirror a like sentiment for a short period of time in U.S. equities as well. 

Another variable that will come into play this week, centered on the surrounding Euro Zone arena, is the snap election called by U.K.’s Prime Minister Theresa May. What was once thought to be a slam dunk for May is now called into question as the Prime Minister’s lead has shrunk dramatically in recent weeks and days and as May’s rating has turned negative for the first time since winning the role of Prime Minister last year. A Survation poll showed her Conservative Party's lead had dropped to a new low of just one percentage point. Having noted the Survation poll, other polls still show May with a dwindling, although decent lead. While May is still expected to win the election, obtaining a majority is now very much in question. If Britain is thrown into political deadlock ahead of formal Brexit talks with the European Union on June 19^th, this could spell trouble for the nation. 

Moreover, the U.K. seemingly has other issues on its plate with a series of terrorist attacks hitting the region in the last several weeks. The first attack occurred during a pop concert, killing 23 people including children. This weekend, a van mowed down more than a dozen people on the London Bridge, killing 7 people and injuring dozens more. This before additional attacks were carried out by the drivers of the van who ran through the streets stabbing individuals before all three terrorists were shot dead. The frightful seen played out in the news over night across the globe.  

Last, but certainly not least and as I pray for the safety of all U.K. citizens, is the ongoing drama surrounding James Comey and President Donald Trump. Like the aforementioned U.K. snap election vote and European Central Bank policy statements, James Comey will testify before the Senate Intelligence Committee on June 8^th. Yep, all of these events will come to pass on the same date. Comey is set to testify before the Senate Committee at 10:00 a.m. EST. The circumstances surrounding this testimony will center on President Trump’s actions that concern a possible attempt to obstruct a Federal investigation. If the testimony suggests there was no attempt to obstruct the investigation the markets will likely brush off the event, but if it appears there was a level of obstruction the markets will likely come under selling pressure and increased volatility. 

With very little U.S. economic data due out this coming week, the macro-headlines will dominate the weekly trade. The S&P 500, Dow and Nasdaq have all achieved record level highs to finish last week’s trade. This on the heels of great market complacency that exhibits minimal levels of fear as identified by the VIX below 10. 

As indicated in the chart of the VIX above, the fear gauge finished last week below 10 and near record low levels. The major events occurring in the U.S. and Europe this week may be just the events to bring back some increased levels of fear into the market, spurring the VIX higher, even if only temporarily. With the aforementioned in mind and with consideration given to the Golden Capital Portfolio that I manage for clients, I will be making some adjustments to the Portfolio’s holdings early in the trading week. Year-to-date, Golden Capital Portfolio has now achieved a return on capital invested (ROIC) of nearly 90 percent. The Portfolio is on-track to surpass last year’s ROIC of 164 percent.  

Given the nature of the events taking place this coming week and with respect to the major averages in the U.S. having achieved rather lofty levels with still yet 6 months left in FY17, I will be looking to protect Golden Capital Portfolio holdings and returns garnered to date. Golden Capital Portfolio maintains a majority, short volatility trading strategy and has since 2012. The greatest allocation in the Portfolio has/is dedicated to short ProShares Ultra VIX Short-Term Futures ETF (UVXY).

Last week, shares of UVXY achieved an all-time low trading price before finishing the week trading at roughly $10.50 per share. 

Shares of UVXY have fallen nearly 76% YTD which have greatly boosted the YTD performance of Golden Capital Portfolio. The design of UVXY and other like VIX-leveraged ETPs is to decay in value over time. There are inverse VIX ETPs that are designed to rise in price over time with lesser risk management, but lack the leverage captured in UVXY. The transmission mechanism or process of VIX Futures rolling contracts expresses a variable understood to be contango. Contango suppresses the upward price movement of UVXY and like products. Presently, contango is resting just below 8% and has been lingering in the single-digit area for some time now.  

Given the variables investors are facing this coming week, many of which will express a high level of uncertainty until end results are understood, I will be looking to cover portions of Golden Capital Portfolio UVXY short holdings. Regardless of where the instrument opens on Monday June 5^th, I will be looking to reduce exposure. Golden Capital Portfolio has maintained a 20% core, short UVXY holding since 2012 and I will be looking to temporarily reduce this amount by upwards of 3.5% of assets. This will not be the first time I have reduced exposure to the instrument as earlier in the year I did so, only to find shares of UVXY significantly higher in price. At that time, I recaptured disposed of shares at higher prices only to find a resumption of price decay. The goal of Monday’s short covering will be to execute a like scenario, benefiting ROIC performance that much further. The risk/reward in performing this exercise is advantageous given the already captured near-90% ROIC year-to-date performance for the Portfolio. Simply put, if I’m wrong and shares of UVXY continue their price decay unabated, the Portfolio will still benefit albeit to a lesser extent. If I’m accurate and increased volatility proves to boost the share price of UVXY temporarily, the Portfolio will also benefit longer-term by recapturing shares short at higher prices. 

This week will prove to be most interesting and I believe the world will be watching to see how the Comey testimony is received. While a near-term market pullback coupled with increased levels of volatility may be at hand, none of the macro-variables have the potential to impact corporate earnings. They are largely political and monetary policy based headlines. Such factors take a good deal of time to, if they ever, impact corporate earnings. It is with this understanding, as supported throughout history that any pullback in the market is likely a temporary pullback that leads to further gains in the major averages by year’s end. Earnings drive markets, they always have and likely always will. Stay focused, nimble and active this week and your portfolio will likely be rewarded with greater returns over the long haul.