Although the S&P 500 almost touched its high for the year on its eighth up day out of the last nine trading days, the VIX (the volatility index) increased almost 4%. So, as the S&P 500 scrapes at fresh 18-month highs, the VIX is bouncing from 21-month lows. The chart below shows the current action in the VIX.
*Chart created using TeleChart:
The last time the VIX bounced from these levels, the S&P 500 proceeded to sell-off for three weeks. With the stock market overbought and getting more so with each passing day (the percentage of stocks trading above their 40-day moving averages, T2108, is now at a very lofty 84%), the potential for another steep correction increases. For now, I do not expect the next correction to match the last one simply because we seem to be missing a near-term catalyst. The Greek debt headlines that caused so much trouble in January and February are starting to get “old.” The euro, and thus the dollar, have been stuck in tight trading ranges for almost a month now. Perhaps the Federal Reserve meeting next week will provide grease for the skids. We also have yet another earnings season around the corner and perhaps some surprising earnings warnings hit the tape in the coming weeks (but not likely?). Regardless, this appears to be a poor time to initiate new longs.
Be careful out there!
Full disclosure: long SSO puts