On Friday, the VIX closed the bullish window dating from early-December, paving the way for new gains in the S&P 500 Index. Elimination of support in the VIX at 12.08 leaves some accounts over-hedged for the prospect for a back up in the S&P 500. This should lead to some more aggressive equity buying today and later this week. Further, we have learned that leveraged funds are not so highly leveraged at this stage and could be expected to add to their long positions on current bullish momentum.
The earlier strong sell-off in China’s Shanghai Index and the major distraction from the Greece debt crisis both appear to have passed. The Shanghai Index has repaired somewhat and on technical conditions is expected to repair further. All eyes are said to be off Greece now and taking focus on the likelihood for the Fed moving forward with policy normalization.
Despite some stepped-up nervousness about the likelihood for the Fed firming rates, the S&P 500 should not be expected to be held back by a slightly less accommodative policy stance. In fact, it will likely be somewhat encouraged that the Fed is as constructive as such a stance would imply.
May 20 marked the all time high of 2134.72 for the S&P 500 Index. Currently the index trades to 2128 and may better the record high today. In any case, it appears the VIX has indicated that the pressure is off and longs can now more comfortably enjoy some decent gains.