Yesterday was what I like to refer to as a “shot across the bow” type of day. A warning shot, if you will….
The market has become very complacent despite few signs of light at the end of the tunnel. The coming of the new year and a new President has given the market a temporary jolt of confidence which I believe will subside as investors recognize that earnings are in fact deteriorating more than expected. Yesterday’s 3% decline was the wake up call to investors who have been thinking that everything is going to be okay. The VIX spiked more than 10% after a huge move down from 89 to 37. Clearly, the smart money is beginning to stretch out for protection to the downside. It’s very unusual to see random spikes in volatility during bear markets. Generally, volatility is only cured with more volatility. I think the market has become increasingly risky at thee levels despite the somewhat positive action we’ve been seeing. Do not be fooled by the rally we saw at the end of 2008. It was on miserably light volume and carries just about no weight in my book.
The market will rally on any hint of positive news and I think that is a chance to sell before this earnings season begins.