This will be my only post for the next week as I am traveling out of tomorrow tomorrow. I will return Wednesday night and hope to have a market take posted the next day on Thursday. I never take positions during trips, whether they are for business or pleasure. Instead I’ll release myself of the market for a few days and refresh, while keeping some of the following guidelines in my head…
- This market is still bullish — After giving a scare a week or so ago, low volatility has returned, thus leaving me expecting more gains overall
- Gold could get sold hard — This is an asset that is owned widely and underperforming the market, hardly a good combination
- In the VIX I trust — Below 13 and there is no reason to doubt a continued grind higher in the indexes
At the beginning of February we started to see wider daily ranges on the S&P500 taking place, sometimes as high as 16 points. Those wide ranges meant volatility, and volatility at high levels in the index and a low level in the VIX usually spells trouble. How did this get resolved? The wide ranges have gone away, i.e. we’ve returned to a low volatility environment. As long as this stays the case then this market can and will go higher, possibly even to the all time high of 1,565. As for support, it’s been established pretty clear this moth that 1,495 is a key level to remain above.
GLD once again settled at a 6 month low. For some reason though, I don’t get the sense that many people are paying attention. There are no dire headlines, no 10 minute dedicated CNBC segments, essentially no panic. Compare this to the recent decline in AAPL, or what the media might be saying if the market was at 6 month lows. There would be hell. I view this as extremely contrarian bearish for the yellow metal.
The bull case would be that GLD is at 6 month lows yet only down 5% on a year over year basis. While that is true, to me that underlines the lack of fear in the recent price action in gold that I would expect to be seeing. If GLD maintains below $159-$160 then the next most likely destination is $150, and when the fear mongers come out, it will probably be because GLD has already dropped 3-5% in one single day.
The VIX voyaged above 13 today and was in the green before rolling over and finishing near its low, down 2.5%. The VIX is another indicator that has undone the warning signs it was showing at the beginning of the month. The main thing now is that it keeps staying below the 13 level. There is one main thing I’ll watch for that could have bearish implications. If the VIX does indeed start falling towards the 10-11 range, but we don’t get an inversely correlated move higher beyond 1,530 in SPX then I’d be cautious. Otherwise I don’t expect the VIX to do much in terms of upside movement unless 1,495 breaks down.
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