DEFINITE DIVERGENCE OCCURRING

Now that the SPX has risen above "THE FIGURE" of 1000, what needs to be pointed out is that a corresponding drop in the VIX to news lows has not happened. Not saying that the market cant continue to rally, but it looks like Options Volatility has stabilized for the time being. This is definitely a sign that the rally is long in the tooth. Congrats to the Bulls...But Beware.



If you notice in this chart, the last time the SPX was at 1000, it had a corresponding 48 on the VIX, which was still high relative to historical standards. That alone forecasted lower equity prices. When the SPX dropped from over 1000 to 750 or so in mid November 2008, you notice that the VIX exploded up to 80 or so. In the subsequent months, as equity index prices continued to drop, the VIX also dropped as well, as Option Volatility trades needed to be unwound. But the clear buy signal in early March was when the equity averages had their final acceleration to the downside, but the VIX was no where near its highs. This was the buy signal.

When the VIX was 80, the market was telling you that too much negativity was being built into the market. Now the VIX is telling you there is too much hope being built into the market. Too many people have suddenly gone to the bull camp, that alone tells me to take the profits.

The markets have surged 15% the last few weeks from 880 to 1000 on the SPX, but VIX prices have actually rallied in this time. You would expect that the VIX to be a lot lower then where it is currently.

Is this just an anomaly?
Or are investors bracing for the inevitable fall/autumn slide?

If we do see (probable) lower equity prices in the fall, you can say that the VIX forecasted it.