Stubbornly Low VIX

The last couple of days has seen some decent volatility.  One big up day, and taking back over half of those gains in a day yesterday.  Usually when you get a down day, the VIX goes up.  Yesterday, VIX opened at 12.43, set a high of 12.71, and closed at 11.81.  SPX basically was trending down the whole day.  So the VIX went down a nontrivial amount even with a SPX that dropped from 2395 at the open to 2382 at the close.

Maybe it is just noise within this narrow range that the VIX has been trading the past 3 months, and perhaps there was a lot of excess vol priced in for Trump's Tuesday speech.  But usually you would like to see VIX going higher on a down day if you are bearish.

It just makes for a trickier market, one where the anecdotal mood is not exuberant, but  the recent fund inflows are heavy.  Those shy ETF buyers are buying and staying silent.  We had the SNAP IPO and almost everyone is negative on that stock, not something you usually see at a top.

So there are mixed signals, you have heavy inflows into the ETFs, after a big rally, which is usually negative, but then you these other factors which show that the rally can go.  Nothing easy here.

Bonds continue to act heavy, going down with stocks yesterday.  Fed funds is now pricing in about 80% chance of a hike.  I think almost every analyst was expecting a June rate hike last week, now they are scrambling to adjust their rate hike expectations.  With that comes a lot of bond selling.  Plus you have lots of Treasury supply coming on next week ahead of the nonfarm payrolls report, and you have a lot of traders wanting to get out ASAP.

Lastly, when permabulls that come out on CNBC suddenly expect a correction (Tony Dwyer, Tom Lee, etc.), like they have so far this year, pay attention.  They are usually wrong.  Even though these guys have been right being bullish for all these years, they are not smart money.