Finally, the VIX is back in the ditch. Given the Wal-Mart discussion it’s hard to fathom a VIX so low with the worries they have over WMT. I’ve heard some people discuss a 1987 style event. I think it’s feasible. Let’s keep in mind that 1987 came as a result of an extremely overbought market, it might have been a crash but in no shape or form did we have the kind of financial disaster that came in 2008. I’m on record at least a zillion times stating the VIX situation will resolve. It’s not a matter of if; it’s a matter of when. If it stubbornly won’t go peacefully, markets seem to have a way of compensating for that. A VIX at 13 can suddenly be at 25 in a week but not under normal circumstances. It would take a 1987 style event to make that happen. If it did happen we’d get a tremendous shake of the trees and that would be that. It would certainly shake up a few people but if 1987 is the true theme it will not cause much long term damage to this young secular bull market. I think the damage would come in more as a result of the fear of a serious breakout in the US Dollar.
So is a 1987 style event a given? Not at all but the higher this market goes without relief from the VIX the chances improve all the time something like it could materialize. The most important condition to watch for this week is going to be the European charts. Do they turn sideways or keep dropping? Right now this FTSE is still setup to go lower. Finally, the State of the Union speech meant we are back in a political season with the defense spending cuts ready to kick in really soon. It’s time to go on roller coaster watch. Remember the fiscal cliff and NHL lockout negotiations? How could you forget? We could have lots of twists and turns in the next week. Be careful.