I Won’t Say It…So What To Do Now

The S&P 500 had its worst day in Months on Thursday. 

I have spent the last week telling you guys that something like this was coming.  

The 1st really good warning was on Friday morning when we told you the VIX and the S&P 500 were correlating.

Remember, the VIX is supposed to go up when markets drop, not when they rally.

When the market rallies and the VIX rallies, that is a sign smart money is buying protection ‘on the way up…’

A clear sign institutions don’t trust a rally.

The second sign, something that continues through today was the price action of the VIX futures.

Including yesterday, the VIX September and October futures have been up for 9 straight days…

That is unprecedented in a bull market.  

I would argue it is almost as nutty as the price action of AAPL leading up to its stock split.

So now that we have had a day of selling, is the VIX saying to ‘buy the dip”?

In a word:  NO.

The VIX was up as much as 10 points at one point yesterday….

The VIX futures appear to be starting to flatten…meaning VIX cash is probably going to break above the September contract, and the September contract could rally over the October price.

The above flattening, once complete is called backwardation.

In backwardation markets have meltdowns, and hard rallies.

We are on the tail end of a 1999 type of move…concentrated in 5 mega cap stocks (6 if you want to add TSLA).

I remember in 2000, when I tried to ‘buy the dip’  I should have ‘bought something else’…like a CVX.

The point is I could do a victory lap, and say ‘I told you so!’ 

But it is more important to me that the message right now is, the market is pricing itself like there is a lot more to come out.

And when the market finally does stop selling off…there is no guarantee that the same 6 stocks are going to get all the love…

Your Only Option,

Mark Sebastian