Last week, our old friends from October (Volatility and Cash) outperformed pretty much everything on our macro screens (see chart). On a week over week basis, the US Dollar was +2% and the VIX was +8%. This combo crushed the potential for either commodities or stocks to get a bid – they closed down -3% and -4.5% on the week, respectively. The only way to get the SP500 and CRB Commodities Index to “re-flate” is to bury both the US currency, and the consensus fears expressed via volatility.
The overlay of the chart below is an important one to keep front and center on your screens. The VIX’s intermediate “Trend” will remain a bullish factor for the US stock market, provided that it doesn’t close above the 55.02 line. Can the SP500 test my support line of 818? You bet your Madoff it can – but if the VIX doesn’t confirm, don’t hang out down there without covering any shorts for too long, or you’ll be faced with the same snap rally you saw from the lows last week, as the VIX backed off my line.
Keith R. McCullough
CEO / Chief Investment Officer