Caution Light on Markets: VIX Rising

by: Larry MacDonald

Is it time to buy put options on the market indexes or inverse exchange traded funds? Maybe so: with stocks having gone on a tear and now looking overbought, perhaps it's time for some portfolio insurance. A choppy patch could be in store, a correction that gives this bull market time to rest.

Some of the signs of overheating:

• a CNNMoney.com article notes that 24 of the past 27 days have been up for S&P 500 index, tying a record not seen since 1927.

• insiders are unloading into the rally (as noted in an earlier post)

• the VIX measure of volatility is not going down – it is edging up

• the spread between corporate and government bonds is edging up

VIX 1-yr. chart:

VIX chart

Related Articles: Enjoy Your (Market) Ride, Please Exit to the Rear; Three Reasons I'm Bearish On This Market; S&P 500 at Technical Extremes: Expecting Short Term Downside; A Few Reasons to Continue Equity Exposure