Sticky Vol

This volatility isn't calming down.  It's off the hook.  Usually after such a huge rally after a big event, the VIX would plummet and stay down.  But it's not staying down.  Its bouncing back up, and bouncing off of high levels.  It bottomed at 26 yesterday.   The October 12 top saw VIX just barely get to 25 before exploding higher.   That was understandable, as VIX was juiced higher because of the election.  But now?  

Some of these moves in the overnight market are obscene, stuff you would think that would happen after the market is down 10% and in a steep downtrend.  Its happening after 4 straight strong up days, all of which had intense up and down moves during the regular trading hours.  

I don't think its because Trump isn't conceding or screaming fraud.   Its not because of the second wave of coronavirus.   Its just a new market, an overvalued market that doesn't have a strong valuation base to stabilize it.  Like a 1999-2000.  I keep coming back to that dotcom bubble era, because the stratification of strength in the market is as extreme as back then, when tech stocks were bubbling higher while the small caps were going nowhere.  

In the late 90s, the market was in a strong bull phase but so was volatility.  Volatility fluctuated around 20 to 30 for most of that time.  Now in 2020 after the crash, we are fluctuating mostly in a band from 25 to 40.  Back in 2017, volatility was fluctuating from 9 to 15.  Market is almost 3 times as volatile as 2017!

Its not a healthy bull market for the long term.  In the short-intermediate term, from a few weeks to a few months, we can definitely go higher, but all that will do is setup a spectacular fall when the fundamentals come to bear.   No organic growth, total dependence on loose monetary and fiscal policy, and a ballooning budget deficit and overall national debt level that will begin to pressure the dollar lower, and eventually take away reserve currency status.  And those sold out politicians in Washington DC either don't care or don't think its a long term problem.  

I am still long, but I know I am just playing a game of musical chairs, so I always keep an eye out for too much froth and optimism.  From my observations of traders on social media, I just don't see the enthusiasm that one would normally expect after such a monster 4 day rally.  The bond yields are staying low, which is key.  I still see too many analysts on CNBC tout value over growth.  That tells me this Nasdaq bubble still has a long way to go.  

And its the Nasdaq stocks that will take this market higher, not small caps.  Bad breadth is not a sign of overall market weakness, as the Fintwit "experts" think, but a sign that the crowd hasn't bought into the rally.  Once the small caps start outperforming for a few weeks straight, then you will know that there isn't much time left for stocks to keep going up.  We are nowhere near that point.