As noted yesterday,
only a lower low to the May low will officially kill the cyclical bull,
but today we tune in on something that is usually a negative for stocks
and could paint the current rebound as not simply another great buying
opportunity on the way to fresh highs.
A reader asked me to look at the status of the VIX in conjunction with the SPX:
We have noted that the current correction from over bought status –
the anticipated October correction that has been all that and more – has
a notable similarity to the correction that came amid last spring’s
Euro hysteria / Greek tragedy. Price and momentum indicators (not
shown) have basically acted the same as they did in May/June in coming
to a very over sold level.
But then we look at the VIX (top panel, lower). Where’s the spike?
There is no volatility; just steady selling as players puked up shares
in concert with this month’s Fiscal Cliff ™ hype fest. For reference,
the 10 day exponential moving averages on the Equity Put/Call ratio
(bottom panel) has ground higher as opposed to its panicked spike of
last spring. This is more constructive to the bull case but still, no
spike.
The big question is whether this lack of bearish conviction is a
precursor to a new bull run to new highs or a negative divergence to the
bull case because the market did not become emotionally sold out. Over
at Sentimentrader.com, Jason is
talking about Rydex fund flows having come pouring out of bull funds,
but the caveat is that they have not poured heavily into bear funds,
which is typically seen at major bullish contrarian opportunities.
It’s interesting to ponder if nothing else. The market… always
providing us with food for thought. Goes well with tomorrow’s food for
celebration. Got to love it.
