Yesterday, I noted some subtle internal weakness creeping in to the stock market, as fewer stocks have participated in each market rally over the last 12 months. The uptrend remains healthy, and it wouldn’t take much for the stock market to break out to new all time highs, potentially leading to more momentum traders chasing the market higher. However, there are signs of subtle deterioration under the surface.
Today’s chart adds another piece to the puzzle. The Vix index in essence measures the level of volatility experienced by equity investors. When the VIX is low, investors are in confident mood and have little desire to buy portfolio insurance. Spikes in volatility generally, but not always, coincide with stock market declines. Now take a look at the chart below. The VIX made a rounded bottom and started climbing in advance of the the Internet bubble in 1999/2000 and the Financial Crisis in 2008. The VIX is climbing again today. Volatility is slowly edging higher and investors again are in confident mood.
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