Ahead of my May Newsletter I feel it is important that I bring your attention to the classic S&P Volatility Index or ViX as commonly known. During the record long bull run (2009-2021) we have witnessed since the recovery of 2008 crisis the average Volatility of the S&P was stuck at 15 (price trading between 10 & 20). With the exception of the 2 sell offs in 2018 which brought the Vix briefly above 30 and the Pandemic strong sell off in 2020 that pushed Volatility above 80. These episodes were already an indication that the 12 year bull run was reaching its limits, while the 2020 extended drop clearly indicates that investors are quite uncomfortable with the crazy price levels that stock have reached. However the enormous amount of liquidity provided by our Central Banks has prevented futher price drop and contributed to fuel the inconsistent price highs reached in November 2021. Now that a worldwide exceptional inflationary pressure has forced Central Banks to suddendly reduce money supply.

This, coupled with the recent geopolitical events that has seriously affected world trade, is bringing back investors down to earth. Falling from the classic Bubble imaginary world where new valuation measures and metrics were touted to justify the relentless rise, and the greater fool theory: the idea that no matter how prices go, there will always be a market of buyers willing to pay more.
Only 4 days ago the IMF
Tobias Adrian, director for monetary and capital markets at the IMF, finally stated what I my indicators are desperately SCREAMING since December 2021:
“The intended consequences of monetary tightening is to tighten financial conditions to slow down economic activity and I would not be surprised if we were to see a certain amount of readjustment of asset valuations going forward and that could be in equity markets as well as in corporate bond markets and sovereign markets”.

It is not his role to mention Crypto markets, but like any overpriced asset I include it in the mentioned “price readjustment”, to say it nicely. And last but not least let’s not forget Real Estate sector which because of its nature will react with a certain lag, but will be inevitably hit by the credit crunch and excessive valuations.
I am clearly carried away by my frustration because many investors are still ignoring the evidence driven by a cognitive dissonance and a totally misplaced hope. So let’s get back to earth and my ViX Index…If you notice on the attached chart I pulled a black trendline that connects all consecutive higher lows since November S&P all time high. This rising support line has clearly held the ViX above. 18.20/19 during March S&P V shape recovery and signaled that Stock prices could not rise further. Moreover, in the last two weeks the price of ViX consistently closed above opening price definitely confirming we will see a higher range for the next months: higher price Volatility and ViX new year highs.

This reinforces my opinion that professional investors are reducing equity exposure while adjusting their asset allocation. Anticipating the cyclical Sell in May and go Away. EXPECT MARCH LOWS to be CHALLENGED.
Please follow the trend, don’ t let your emotions prevail. For my core followers: I think you need no more evidence to set your speculative Shorts at 100% capacity. At this point I will refrain from replying to arguments or excuses attempting to justify holding some long positions.

Dear Readers Sail Safe.


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