Friday, 9 December 2016

The VIX divergence

US equity indexes closed broadly higher, sp +4pts @ 2246. The two leaders - Trans/R2K, settled higher by 0.5% and 1.6% respectively. VIX settled +3.4% @ 12.64. Near term outlook increasingly threatens a retrace, as the VIX appears floored from 11.30. At best, the sp'2170s... where the 50dma will soon be lurking.




Yesterday saw equities break new historic highs. Today was a mere repeat performance, as 5 of the 6 main indexes I regularly highlight pushed well beyond the twilight zone.

Also like yesterday, there was a clear divergence between equities and the VIX. Whilst few noticed it yesterday, a great many did notice it today.

The VIX is clearly flashing an early warning, and confirming the (obvious) notion that equities are over-extended.

A retrace is due. The irony is that the market could fall a significant 4%, and that would only take us to around the sp'2170s, where the 50dma will be lurking next week. At best, that might equate to VIX 16/17s. Anything above the key 20 threshold looks out of range.

Goodnight from London