Is VIX Saying Run For The Hills?

1.) GOLD – Reports are now coming out regarding central banks and their net buys/sells on gold. The World Gold Council reports that central banks resumed net gold purchases in April, having bought $17 trillion. That’s a pretty big rebound from the sizable net sales reported in March. Could gold break down further from here? Sure. Gold has strong support at $4,400. If that breaks, $4,000 would not be a huge surprise. A sustained rally doesn’t likely happen until we see a break and hold above the $4,700 area.

2.) FUEL – Where’s the fuel for markets? There’s a pile of cash sitting in money-market funds. People have lots of worries these days…war, rates, energy, inflation…you name it. So, human nature is to protect. People are doing their best to do that by keeping over $8 trillion in money-market funds. At some point, it’s likely that human nature will do what human nature does and feel like they’re getting left behind. That’s when FOMO sets in…Fear Of Missing Out is a very strong psychological state. And with that much money on the sidelines, there’s plenty of fuel to keep this market moving.

3.) VIX – Is VIX saying it's time to hide? Nope. Sure, the market has had a strong run, and it feels like everyone is standing next to the exit door because they believe the party is about to end. But parties usually don’t end when S&P futures are down half a percent and the VIX is sitting at 15.6, barely moving while the front month VIX future at 17 is not moving at all. Start paying attention when the VIX moves at roughly a 1-to-6 ratio relative to the S&P 500. Right now, there’s likely a handful of very overstretched tech names that probably need a correction…which doesn’t mean they will. They don’t care what I think! What I don’t see is a signal from the VIX that the broader market is facing a meaningful correction. That doesn’t mean the market can’t pull back 1–3%, especially the Nasdaq. It certainly can. But major corrections are usually accompanied by clear signals from the VIX, and the VIX isn’t seeing that today. The VIX is around 15.5, hedges are relatively cheap, and yet nobody seems to be rushing to buy protection.