Those looking for a move above the record closing high of 1,565 in SPX this morning nearly got it, but the move stalled out and the index has since reversed. The reversal has been shared across the other major indexes as the Dow is down 60, the NASDAQ 10, DJT 35, and the Russell 2. Given that this is only a 4 day week, I expect the action that has played out so far today to be somewhat of a microcosm for the week as a whole. All in all, the thesis that I laid out last Wednesday is the one I am sticking too in the immediate term.
In today’s write up I want to discuss what looks to be an unnoticed streak in the VIX that you need to pay attention too:
As long as the VIX closes above 12.85 today it is going to do something it hasn’t done all of 2013: close 3 consecutive days above its opening price.
The last time the VIX did do this was the last week of December which was the lowest the S&P500 has been in the last 4 months. The difference between this time and that time though is the VIX accomplished the feat from a starting point of 18. As a result, I’m not going to compare this recent streak to that one, instead I am going to compare it to 11/30/12-12/4/12 because the starting point there was closer to 15.
What is interesting to note about that stretch in late November/early December is that it preceded a move to both, a new SPX high for December, but also a new SPX low for December. The key criteria that looks to have triggered the sustained volatility that followed 12/4/12? The VIX, while it did pullback and bounce around in the 1-2 weeks that followed, never broke below the low of where the streak began, in that case the 11/30 low of 14.89. That means that after today (once again assuming the VIX closes above 12.85) the level to watch for a potential repeat signal is 12.62.
The fact that this streak is appearing the last week of March and near the all time highs is ominous in my view. Because if a similar situation plays out, we could actually move above the looming record close of 1,565, only to then pullback below 1,538 all in the course of the next 2 weeks or so. When I couple the recent VIX history from December with the history of the last 3 years, when the S&P500 has made what was at least a 6 month high during April/May, I grow even more cautious.
My bottom line is I am starting to see more and more evidence that the S&P500 is in the 8th or 9th inning of this monstrous year-to-date move. That’s not to say we’re looking at our highs for the year, but it does make sense to me that we could be very near what is a likely 3-6 month top. Seasonality, volatility, and the financial sector (watch $18.06 in XLF) are all contributing to my view, and they are all starting to line up next to each other.
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