First of all, the reason that the NASDAQ has been "diverging" from the S&P and the Dow is because in the later stages of a bull move, ( and well after the tremendous money supply injection of M3 that occurred in the late summer of 2003 ) there is a
rotation out of high beta, high growth names which are native to the technology sector and into much larger blue-chip type "cyclical" plays; hence, the strength in the Dow and the relative weakness in the Nasdaq.
This is nothing new and is a well documented historical phenomena by well known market strategists. Moreover, this is not a sign of weakness of the Bull. In fact, it is a key to the Bulls longetivity. While I might allow for a measured-move in the Nasdaq down to 1955 tops, I would be inclined to say that the semi-conductor names in the Nasdaq have already gone thru a pretty decent correction, with many names such as market and index leader
Intel having already corrected in time ( 5 weeks ) and price ( 15% ).
As for the
VIX, anyone that thinks that today's close of 14.83 is indicative of a market that is about to head South in a major way needs to look at market history. The VIX traded in a range of between 18 and 45 from early 1997 till mid 2003. In mid 2003, the VIX broke the 18 level which it had bounced off of for nearly 6.5 years. If you had taken this as a sign that the market could not go up any further, you got blown away. In fact, the last 6 months of 2003 saw the VIX collapse from the 23 level to roughly 15 and the Nasdaq went from the 1350 level to 2190 for approximately a 50% move!
If you seriously believe that the market cannot go up any further from here because the VIX is far too low, you obviously have not been around the markets very long. Simply take a look at 1992 and especially 1993 in which the VIX traded in a very similar, long drawn-out downward progression
to a low of 9.
Furthermore, to go short at today's Nasdaq close of 2,032 let alone allowing for a few more upward sessions to "scale" into a short position on the Naz with say an average price of 2050, why would anyone even wish to use a buy-stop of 2100 that is
2.5% away? In my book, that is being
wrong for far too long.
As for interest rates, the long bond is showing a tremendous amount of "bid" to it, even in the face of continually rising oil prices, a huge move in the metals ( copper at 6.5 year highs, silver as well ), and grain markets with soybeans having surged almost 80% since September of last year. However, the 10-year bond is still trading at roughly
4.05% Is there something that the Bond Market participants know that the the rest of the "interest rates are going up" crowd doesn't?
I think so.
But don't take my word for it.
I've only been trading since 1980.
