Are You Prepared?

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We are broadly grinding sideways this morning, as the market appears to be taking a respite after last week’s V-shaped move off the lows of Tuesday’s sharp sell-off. Some of the defensive sectors are green, in addition to the IYR and IBB, two sectors that appear to be in strong demand by institutional players in 2012. We have seen the usual (at least initial) false breakout in a stock that everyone on Twitter is watching all at once, and today that stock was LNKD.

In addition to the dull action, which I interpret as constructive for bulls due to the V-shaped move last week, there is much ballyhoo being made in the blogosphere about the VIX dropping down to 15 this morning. I see Mr. Durden over at Zero Hedge is construing this as “record complacency” on the part of market participants. A look back through history, though, reveals that the VIX is capable getting down to the low teens and staying down there, such as during the 2003-2007 cyclical bull market. While it makes for content and more Zero Hedge-style sensationalism, the reality is that this could easily just be the start of a sinking VIX.  The question is: Are you prepared for that scenario? Not because it is a guarantee to happen by any stretch, but because it most certainly can happen.

Beyond that, a boring market looks to be just what the doctor ordered for the bull case, as the bears wanted to immediately sink their claws into the reflex rally off Tuesday’s lows. If we continue to grind over the next few hours without the bears’ attempts to “short at resistance” working, then I suspect we could be in for an afternoon squeeze.

Finishing strong is the hallmark of a bullish tape. Let’s see if that continues.