The third week of 2012 continued equity’s march higher, finally leaving the market in a broadly overbought state with the VIX heavily overstretched to the downside. Indeed, the S&P 500 advanced another +2.1% during the holiday shortened week.
Price may have a bit farther to go into the FOMC statement (not to mention a rumored Greek accord), and I’ll grant this ‘feels’ a great deal like early last year. Risk is certainly being repriced, but it’s important to note that we are quite extended here by short-term technical measures. The bond complex is conversely well oversold. With the VIX touching the 20-mark, portfolio insurance is about as inexpensive as it gets for intermediate-term investors.
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