Market Regime Change

The VIX is not going down as the market keeps going higher.  In fact, it is going up with the market.  And the VIX is already high at 24.  There are more and more unusual extreme conditions that keep popping up.  The parallels to the dotcom bubble period from 1998 to 2000 keep popping up.  They are the following:

1. VIX staying stubbornly high, above 20, and even going higher as the stock market keeps going higher.  This didn't happen at any time over the past 20 years.  Even in the post crash 2009 rally market, the VIX made lower highs and lower lows as the SPX kept going higher.  The last time we saw the VIX stay so high as the market kept rallying was 2000.  It appears that we've entered a new volatility regime, much like the jump step higher in VIX(12 to 20) from 1996 to 1997, with VIX staying high as the market went higher in 1999 and 2000 (staying mostly above 20).   

2. Equity put/call ratios moving to very low levels and staying there for months.  In June, we saw tremendous call volume and very low put/call ratios.  Since then, the put/call ratio range has shifted to a lower level, to levels that we haven't seen since 2000.  

3. Growing divergence between large cap and small cap performance, especially in Nasdaq names.  Not all Nasdaq stocks are performing well.  Its really only the big names like MSFT, AAPL, AMZN, FB, GOOG, TSLA, etc.  Those doing the worst are companies with market caps under $1 billion, and especially those under $500 million.  Again, a continuation of the large cap vs small cap divergence that we've seen since February 2019.  That persists 18 months later, and is getting even bigger.  Similar thing happened in 1998 and 1999 between SPX and Russell 2000 shown below.

Ironically, the market topped out in March 2000 as the Russell 2000 started to catch up with the SPX.  This was also a time when 10 year yields were in the final phase of the uptrend it started from in late 1999.  

Current divergence between SPX and Russell 2000:

Back to the current market.  It is index short seller hell.  The uptrend has gone parabolic led by just a few tech stocks.  The fall can't come fast enough.  Perhaps the top will be when AAPL and TSLA split their stock on Monday, August 31.  We saw a big move higher in bond yields yesterday, which is a positive for bears, as the market likes to top out after bond yields have gone higher (see October 2018, April 2019, June 2020).