The Truth Behind The Rally (SPX, VIX)

As the overall market rallies to end the week, some traders are left wondering, “What happened to the pessimism that was percolating through markets as recently as yesterday?” Case in point, action from the CBOE Volatility Index VIX Pit yesterday, which reinforced the notion that traders have been and are continuing to be wary of the rally in equities. Note that with the SPX higher by 22 points, though, the VIX is now reading 21.83, down 8.55% on the session. Notably, the front month VIX future is lower by $1.30 today as well, trading at $24.50. So what changed overnight? To answer that question, we need to refer to two interviews conducted on CNBC over the past 24 hours. The first is that of Mark Fisher and the second that of David Tepper. While you may not know anything about these two people, the long and short of it is that they are, frankly, filthy-rich genius traders who don't have to even feed themselves if they chose not to, moreover still trade and/or prognosticate on the markets. The morale of Mark Fisher's interview was that the markets, every market, including the economic and consumer markets, is bogged in uncertainly and negative sentiment. He voiced the point that stocks, bonds, economic activity, gold prices, etc will remain in their current trends until market sentiment shifts dramatically. Mr. Fisher called for quick, fresh thinking to combat an economic problem this world has likely never faced prior. The morale of David Tepper's interview this morning, which I encourage readers to view here, was that of confidence, blatant, unyielding, unwavering, confidence that the Federal Reserve, by hook or by crook, will drive this economy toward higher GDP growth and higher asset prices. In short, he parted a small red sea of uncertainty that is the U.S. equity markets—he changed market sentiment. Whether the rally will continue into the rest of the year is questionable, but it does have the look of a virtuous circle, where asset prices rise, technical traders get pulled along, large institutions chase, and then even small improvements in economic data look favorable. While you can't put all your chips in the pot at any point, the market is showing you that the trend remains higher and that you can put a little bit more cash to work on pull backs in high quality names. Analyze Any Stock FREE! Click Here.