When will the VIX break higher?

Since the equity low of sp'1074 in Oct'2011, the VIX has seen a very steep decline from a spike high of 48 to the 11s. The US market remains at a very high level of complacency. Yet, as 2004-07 showed, the VIX can indeed remain at such low levels for a fair few years.


VIX, monthly'1, 9yr

VIX, monthly'3

SPY/VIX ratio, weekly, 10yr

Summary

Chart monthly'3, is not something I've posted before. I should note first, its just one of a number of scenarios. This particular outlook is based on the notion that we will see broad equity gains into late 2015/early 2016.

However, even though the broader trend in equities could well be higher for another few years, that sure doesn't mean the VIX won't at least briefly spike into the 20s..or beyond. 

Just consider the following

VIX spike highs...

2008: 89
2009: 57
2010: 48
2011: 48
2012: 27
2013: 21
2014:  ?


Frankly, even I find it incredulous to imagine the VIX not breaking >20 this summer/autumn. Consider the duration of the rally from Oct'2011,  we are now at month 28, I have to believe we'll see some increasing market volatility this year. The SPY to VIX ratio is at pretty crazy high levels, and we're more than due for some significant degree of equity drop.


As ever..the only issue is how high?

A fair few chartists/commentators out there are seemingly agreed - if from very different perspectives, for some sort of equity intermediate top this summer/autumn, with a decline of something in the region of 20%. I'm certainly still on board with that outlook.

So, I certainly would see VIX in the 20s this year, but really, things only get real interesting if we see a break >30. The 40s will be a tough struggle, even if the market has fallen to the low sp'1600s. After all, who won't be buying the market then?


The summer/autumn correction

For the equity bears out there, one thing to keep in mind this summer...and early autumn. If we do see a significant drop in equities...and a spike in the VIX, is that it sure won't last long. The subsequent rebound in the market (if Yellen goes nuclear with the PRINT key), will likely re-crush the VIX back <20, where it might remain for another 12-18 months.

As I have noted a fair few times, in many ways, 2014 could prove to be a really messy year for most traders. The bulls might get rattled for the first time in over two years, with the equity doomer bears making huge short-side gains, only to get nailed on a subsequent renewed equity hyper-ramp.

Back at the Tuesday open :)

Goodnight from London
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Video from Gordon T Long



Interesting discussion, for those with an interest in the bigger issues.

The EU PIIGS are still rising

Despite the huge underlying macro-economic problems, the equity indexes of the EU PIIGS are still broadly rising. This bodes well for the stronger economies/markets of the USA, Germany, and even Japan...at least into the late spring.


Greece, monthly

Italy, monthly

Spain, monthly

Summary

There is little to add from my recent world monthly index update from two weeks ago.

Suffice to say, the broader up trend does continue, and unquestionably, that is a bullish sign for most of the world equity markets, not least the USA, Germany, and Japan.

The late spring targets for Greece, Italy, and Spain, remain 1500, 22500, and 12000 respectively.

If those are hit, it'd probably equate to sp'1950/2050, with Dow 17250/500
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a little more later, probably on the VIX

BDI - warning of trouble?

Good morning. Futures are..well.....there is no future today :).  One of the most notable surprises of the year so far is the collapse in the Baltic Dry Index (BDI), which has fallen 37%. A break under 1200 would bode badly for those seeking at least a few more months of broad equity upside.


BDI, weekly

BDI, monthly

Summary

*I will be posting some sporadic and somewhat random things across the day..so.. stay tuned.
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So..the BDI has been smashed lower. Certainly, my original upside target for the late spring was 3000/3500..even the 4000s seemed a 'just viable' target..along with sp'1950/2050.

Yet..are those bold targets out of the window now?

Baring a break <1200, I still think the BDI could swing back upward, and if we see the 2000s - at least a little in February/early March, then the original late spring target zone of 3000/3500 is still viable.
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BDI impacting the shippers

The shippers - which were seeing some significant breakouts to end 2013, have naturally been whacked lower. DRYS is a good example....

DRYS, weekly.

DRYS snapped into the lows 5s..only to see around 25% knocked off..back into the upper 3s.

If...and it is a big if now...the BDI can break back >2000, then DRYS should test the recent high in the 5s, and then proceed into the 6/7s.

One final thing to note about the shippers, you can see the huge trading volume increase. That seems likely to remain the case for much of the spring..if not the year.