With the US stock market hitting its intraday highs here in the morning session, the Volatility Index (VIX) is hitting its intraday low. The SP500 is currently +1.1% at 1035 and the VIX is down -4.3% at 27.46.
That’s the most immediate of immediate term (as in 3 hours) views! It’s also rear-view. Prospectively, you learn a lot from that rear-view data. Despite this morning’s moves, I see three very dominant macro lines to consider:
- SP500 immediate term TRADE resistance 1040
- US Dollar immediate term TRADE support $76.09
- VIX intermediate term TREND support 26.19
Andrew Barber and I chose the VIX as the Chart of The Week, not knowing what this morning would bring – and to some extent, using the 3-factor risk management model of SPX/USD/VIX above, we didn’t really care. Provided that the VIX holds this newly established intermediate term line of support, we know what our strategy will be.
Context here is critical (see chart). The VIX has put on a powerful +20% move in the last 2 weeks. This happened right on time, with US Equities failing to make higher-highs after the critical Outside Reversal day of September 23rd.
From a long term TAIL perspective (red line in the chart below), the VIX is broken. But that line includes the highest VIX readings EVER (not in this chart, Q408). Overall, the point here is to Acknowledge Reality. As the US Dollar makes higher-lows, and the SP500 is making lower-highs, the VIX is breaking out on both an immediate and an intermediate term basis, with no resistance of consequence until it gets closer to 40.
As opposed to where we stood in US Equities for most of Q2/Q3 (buyers of equity weakness), for now we are sellers of US equity strength.
Keith R. McCullough
Chief Executive Officer