‘M’ Top-Test Gaining Steam

Several weeks ago we introduced a scenario that could see an opposite situation to the 2015-2016 top (that wasn’t). For successful market management you need to have options at the ready. You don’t marry those options but you carry them forward so as to be able to adjust along the way.

The ‘M’ top-test option made good strides over the last couple of weeks and this morning looks like it is going to gain some steam as the trend line breakout continues. The key point of this chart is that the ‘W’ bottom in 2015-2016 saw the VIX elevating in support of a bottom that would go on to succeed but that in the current situation the VIX is declining in support of a top that could succeed as well. The theme is the ‘W’ going one way and the ‘M’ going the other with the VIX being completely consistent to that view.

spx, vix

Taking the VIX out of the equation, the bulls have the ball on all trends, long and short. Taking SPX at face value the signal is ‘correction over’ and new bull market leg to come. That remains viable, but with the VIX cohabiting with the stand-alone stock market analysis a caution signal is in play on that conventional view. And dutifully, the herd is playing ball by thundering back toward complacent and over bullish. Patience, it’s a process.

As noted in this screen shot of part of NFTRH 500‘s Wrap Up segment…

I am only lightly short a few individual stocks and outside of collecting improving T-Bill income each month (Fed hike upcoming in June at a 95% probability according to futures speculators) have been long a bunch of things in anticipation of this rally.

But the key is the 2 words that come after the ‘M’… “top” & “test”. Just as the 2015-2016 ‘W’ bottom was not a sure thing in advance, the ‘M’ top is not a sure thing either. It’s a test. But the message from the VIX leans the probabilities in favor of the ‘M’ being a marker for renewed correction at some point in the coming months.

So I am not long as an investor outside of a few items I hold for their individual potential. As noted recently either in NFTRH or out here in public, I am running my portfolio as a long/short hedge fund. Right now the bias is strongly bullish. The ‘M’ scenario (incl. the VIX) argues that could change in the coming weeks or months.

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