If you follow me on Twitter (TWTR) then you know I am not a fan of victory laps when it comes to the market. I have always believed that if you celebrate a winner then the market is sure to take you down a notch and show you that losing is also part of this game. And let's face it, no one wins all the time.
So today let's take a look at my big loser. That would be the VIX. Just over two weeks ago I said I thought volatility would rise. And it did, it went from 15 to 18 and back down. Then it went from 15 to 17. Small, minor victories. But on Wednesday of this week it collapsed, to 14. That is a loser and obviously something I did not expect.
Here's something interesting regarding the VIX though. Last Thursday the put/call ratio for the VIX slumped down to 20%, indicating lopsided betting on a higher VIX (I had too much company so I should have known it was wrong). Then on Friday the put/call ratio for the VIX was 27%, not lopsided but still low. Tuesday's trading saw it at 22%. Again, relatively low. Still far too many betting on a higher VIX, which typically means a lower market.
But that changed on Wednesday. It finally lifted to a much more neutral 58%. But why? Does that make sense to you? If you liked it at 16 shouldn't you love it at 14? Yet it's as though folks gave up on a higher VIX on Wednesday. What's even more curious is that they did it on a day the market was choppy at best and a day when Nasdaq clocked in its eighth straight green day.
As we discussed yesterday, the longer Nasdaq goes without a down day, the higher the chance of a down day gets. I realize the VIX is based on the S&P but you have to figure it's all related.
In any event the breadth stayed solid yet again so despite the fact that it feels as though the market has slowed to a crawl, there is still that strength underneath. I would like to see a pullback just to see how the market handles it. Will the breadth stay solid? Will sentiment, which is now complacent (not giddy, just complacent) turn bearish in a hurry or will it stay complacent. I think a pullback would tell us a lot more about the health of this market than another move up.
Finally let's touch on the Overbought/Oversold Oscillator. It hasn't budged since it came off that big overbought reading a month ago. You can see it simply churns here, digesting that big overbought reading. The next few days will be telling though. The math says the window is open for the Oscillator to rise again. If it rises to a lower high it would be our first negative divergence in momentum.