VIX is the Guide

In recent S&P 500 history, you have not had a market top out when the VIX was under 12.  In July 2007, the VIX was ~15 when the market topped out.  Also in May 2011, the VIX was ~15 when the market topped out.  2015 was a bit of an unusual case because the market topped out when the VIX was at 12, but you did have the market flatten out and chop for almost 6 months without any major breakouts, and it was quite a bit more volatile than it is now.

Right now, we have a VIX around 10, with realized VIX in the mid single digits.  Plus, we've made new highs since last week, and now easily above the 2500 SPX psychological barrier.  These are the types of markets which grind higher as investors watch in disbelief that there is hardly even a 5% correction.  Since we had the washout in late August, and nervousness till last week, this move higher has at least 2 more weeks to go, and probably well more than that.

It is a slow motion bubble, so it looks innocuous, with the low volatility, but it is building up a lot of potential imbalances when the top is reached.  When will that top happen?  That is one of the hardest things to predict, the top of an equity bull market.  It is clear that there are still not enough signs.  So while I will not participate in any upward moves from here, I definitely will not get in the way and short it until we start seeing more volatility.  The VIX has to sustain above 12 even after several days of rallying in order for me to be interested in the short side.