The markets quietly made record highs again on Monday as the Dow continued to march higher and the recently beleagured Nasdaq (^IXIC) recovered some lost ground. The move takes the S&P 500 (^GSPC) another step towards 1,900; a level not many folks thought we’d be seeing any time soon as of a week ago when it looked like the world was on the verge of collapse.
Often mischaracterized as the “fear index,” the VIX is simply a measure of the relative size of moves of the stock market. The higher the VIX the more traders think the market is apt to move on a percentage basis in the near term. In times of stress the VIX can push as high as 40. On average it typically resides in the high teens. These days the Vix is less than 13 and moving lower by the day. Kilburg suspects that’s about the change.
Kilburg compares the current period as overtime in the long-running game of hyper-stimulus by the central banks. For years every great macro risk has been met by a flood of resources to ward off any crisis. As is the case when athletes push themselves too hard for too long, the end will come not with a whimper but a bang.
“The athletes have some sort of blowout,” says Kilburg. “That’s when you’ll want to own volatility.”
Of course investors have been sitting on the sidelines waiting for something horrible to happen for the past five years. Potential breakdowns in August of 2011 and fall of 2012 were averted by timely intervention leaving buyers of insurance with nothing to show for their caution as repeated new highs got made. Kilburg says that 1,900 level of the S&P 500 coupled with elections in Ukraine will be the end of complacency for this year.
“As we get closer to May 25th that’s the big election in East Ukraine. I envision a 1,900 print in the S&P500 as well as an 1,800 print within a 2 week span. I think volatility is going to come back at the end of this month.”
By his thinking that makes right about now an outstanding time to lock in some gains. With the VIX spelunking down out of the teens getting long some insurance here makes sense if you buy into the Killer’s outlook.
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