With the US stock market making fresh 3 month lows this morning, it doesn’t surprise us to see a notable lack of conviction. When it comes to volatility however, the game has changed here, and materially so – bears who are pressing the lows, beware.

Looking back at the capitulation lows of October/November one is reminded of the math. The fact of the matter is that the VIX was spiking at an unprecedented 80 during those dark days in American history (see chart) – today, despite pervasive bearish commentary coming out of the manic media, the VIX is struggling to hold its head above 50. The market patient is no longer under cardiac arrest.

The reality is that we have ourselves a New Reality. Some investors have been rightly burned by not proactively managing risk BEFORE that November 20th, 2008 low… but now… AFTER the fact… those reactive managers are just as wrong in straight lining that risk management environment of 2008 into today’s.

Today the TED spread (measures counterparty risk) and liquidity overall have improved significantly versus November (central banks dropping trillions of free moneys from the sky does that) and, as importantly, the VIX remains broken on an intermediate “Trend” line basis.

I have “Trade” (immediate term) resistance in the VIX is the dotted red line below (overbought today), while “Trend” (intermediate term) resistance is plenty higher up at the 53.46 line. Unless that 53.46 line can be penetrated, I think the SP500 lows are in.

I have been getting invested over the course of the last 36 hours as a result. As always, this market patient needs to be monitored, but please do so objectively. Emotions create heartache.

Keith R. McCullough
CEO & Chief Investment Officer