I am keeping this divergence of the VIX to SPX in mind over the near-term. Such divergences preceded the 2020 mini crash in stocks, the 2022 bear cycle and a solid pullback last summer.
Stocks are running on animal spirits now and that will only stop when it stops. But the VIX divergence is what it is and is worthy of respect. To review, a viable plan – if this plays out into some kind of pullback/correction – is for a correction to clear the excesses prior to a final drive (last chance power drive, perhaps) upward by the stock market into election season in November.
There are of course other options like the pig just keeps on bulling or a failure that does not recover into the election. But for now I’d like to simply manage the question of whether the VIX divergence will precede a near-term pullback of some kind.
I came close to trying a short on SPX again yesterday, but looking at the daily chart of the VIX, I decided not to. I thought to myself about how the market seems to always go one step further than I think it will and so I decided to see if the VIX can drop a little bit more within its little post-November uptrend and fill that gap at 13. The difference from here (13.74) to there may not seem like much to some people, but my psych profile with regards to shorting is not a strong one (I get emotional when a bear positions goes against me, unless I am directly hedging).
But if that gap fills and VIX holds its intermediate uptrend (divergence) I may give it a shot. Just a look at something I am watching this week.
