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I have been waiting for this VIX level, patiently. This is another way to think about making sales on the long/short sides right here and now. As overbought as the SP500 is for an immediate term “Trade” (see my prior SP500 “Making Sales” note) is as oversold as the VIX is under 38.

Down another 6.4% at $37.45, the VIX is hitting its 3 day low as the SP500 hits its 3 day highs. The VIX has effectively crashed -54% from its November 20th peak of $80.86 – yes, that was also the date of the SP500’s capitulation low of 752.

The VIX could easily put on a +27% move from this level and not violate the dotted red line we are showing below in this chart. If that were to occur, stocks aren’t going to be going up at the same time. Manage towards the improbable outcomes as well as the obvious ones – that’s what risk management is all about. It feels really good to be long here, but all good things find a point of exhaustion.

Keith R. McCullough
CEO / Chief Investment Officer