Seeking alpha

by Brett Owens

Monday, the volatility index hit its lowest level in 3 months. Does this mean we have a large stock market decline in our future?

Over the last 6 months, lows in the VIX have corresponded with tops in stocks. Since May's spike, it's been a series of lower lows and lower highs for the VIX. Also supporting our bearish case is the declining volume in this leg of the rally, as noted in the chart above.

Calling a short term top is difficult if not impossible - but what the hell, let's have some fun with it. A declining VIX, declining volume, and a general overbought/bullish condition would lead me to guess that we should be in for some sort of decline pretty soon. If/when this occurs, the breadth and magnitude of the sell-off will be interesting to watch. So for now, we are maintaining our current S&P 500 short position. This particular trade has been a loser thus far. But we shall see what the rest of the week has in store for us.

Disclosure: Short the S&P 500 via the futures market and long SDS

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