Monday, May 26, 2014

VIX Weekly Chart Multi-Year Lows Uber Complacency

Volatility is crushed to create the market upside. Traders believe the central bankers will pump the stock market forever so trading is one big long-side party day after day. The VIX is at lows not seen in over one year's time, back at the March-May 2013 market top as well as at the multi-year 2007 stock market top.

The red circles show market tops and green circles show market bottoms. The double circles are more important tops and bottoms. The bulls are enjoying a strong upside rally fueled by lower volatility and higher financials, semiconductors and trannies. The bulls appear to be unstoppable, however, they always do at market tops as the chart above shows. What do you think will happen moving forward?

Keystone's algorithm, Keybot the Quant, identifies the retail sector as the most influential parameter affecting broad market direction currently. Higher retail stocks will create higher equity markets for a few days or week or three more. If retail stocks remains stalled, equities will stall. Watch RTH 58.61. Bulls win big if RTH moves above 58.61. Bears stop the broad market upside if they prevent RTH 58.61. The dollar/yen keeps playing at the 102 pivot. If dollar/yen moves above 102 (weaker yen), the Nikkei and US stocks head higher. If dollar/yen moves lower to 101.90, 101.80 and lower (stronger yen), stocks sell off.

The low volatility in all asset classes currently is remarkable and unprecedented. Volatility is not only low for stocks but also bonds, Japan markets, currencies such as the yen, everywhere you look, universal low volatility. This should create caution for traders since something potentially troubling is occurring under the markets. The rise in US and Japan stocks last year was due to the BOJ stabbing the yen lower. Traders are complacent, as the low VIX verifies, since the central bankers keep pumping the stock market higher with easy money but at some point the fluff underneath has to be reconciled. Interestingly, there is only one asset class that is the most greatly under valued and under appreciated currently and is the asset class that everyone, bull and bear, are shunning. What is it? Cash. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.