Last week I looked at the possibility of a VIX spike. VIX is now falling quickly after a sharp spike:
When VIX fell more than -30% over a 3 day historical period, the S&P 500 was almost always higher 6-12 months later, although this could first lead to more short term volatility in the stock market:
Last week’s volatility wrung a little bit of the speculative juices out of the market. A 1 month average of IWM (Russell 2000 ETF) calls – puts volume has fallen to the lowest level in a decade: even lower than during the March 2020 stock market crash.
Over the past 10 years this was a bullish factor for the Russell 2000 over the next 3 months:
And it was a bullish factor for the S&P 500:
Steepening yield curve
The yield curve is steepening after inverting in 2019. Commodities around the world are trending higher on a global re-flation theme.
Historically, a steepening yield curve after a yield curve inversion was bullish for gold over the next 6 months:
Oil has broken above its 200 week moving average for the first time since last March’s plunge:
When oil broke above such key long term resistance in the past, it usually pushed a little higher over the next month:
- Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
- Medium term traders should go neither long nor short.
- Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.