Implied volatility came screaming off as the stock market rallied on Tuesday. The catalyst was a warm and fuzzy feeling flowing from China after the central bank slashed interest rates in an effort to help stem the tide of selling.
But that’s not all. As you know the bottoming process spreads out during 3 days from March 6-9; so that means the whole week will be a big time golden spiral window. Just stay with us, you’ll see. We’ve caught just about every important market turn for the past 16 years.
On Friday, the VIX closed the bullish window dating from early-December, paving the way for new gains in the S&P 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.
Risk is still extremely high and I still believe there could be an event before the end of the year that torpedoes the market. For right now we are due to back and fill. Like March 2011, a decent move commenced but it lasted about 6 weeks. We are coming to the second half of July, its vacation time for the markets. Nothing too drastic should happen here as August is just about the slowest month of the year. But once September gets here my antenna will be out.
At the end of the day explosions like these end up having geopolitical implications. While it may not be tomorrow or next month, I believe that if Greece leaves the EU they will be tempted by Putin who must be standing by and laughing at all this.