Feeling Toppy

The VIX is showing signs of life, although still well below that 14 level where things get much more interesting.  We almost hit 13 yesterday, but quickly went back down towards 12.  The market has gone parabolic over the past several sessions, and with VIX staying firm, usually a sign that we will get at least a small pullback.  At the very best I expect choppy sideways movement over the next couple of weeks.

The Europeans will be quite reluctant to chase equities higher here, especially with the French elections coming up in late April/early May.  The market usually starts worrying about these big events about two months ahead.  So you can expect the weakness to start in European equities in late February/early March.  Europe has already been lagging this parabolic rally in the US and China, and the main reason seems to be event risk.

The Americans could care less, but the Europeans are scared of Le Pen, fearing that she will want Frexit.  An EU break up is not going to be easy.  You will need to see much worse economic times in Europe before you get any hint of a break up.  Le Pen won't have the power to do a Frexit even if she wins, because a big majority in France want to stay in the EU.  But give it a few more years, and a return to recession in the EU.  That will be the biggest catalyst for change.  Not now.  Things are still too placid for any true EU members (UK is a pseudo member, which doesn't use the euro) to make rash decisions to leave.

The gap down in the futures today seems to be because of worries that Le Pen will win the elections.  We still have almost 3 months till the 2nd round in France.  You know European fund managers.  They are a bunch of scarecrows and will sell ahead of the event.  There worries are just getting started.

Still waiting for a good spot to short.  I would like to short all time highs if possible within two weeks.