The stock market – HIGHLY vulnerable

Posted by Greg Weldon - Weldon's Money Monitor

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ED Note: Greg Weldon’s May 5th ETF Playbook nailed the yesterday’s big selloff. Its not wonder Michael Campbell calls Greg Weldon – “The One Analyst other Analysts can’t Wait to Read.”

May 5th/2010

Of course we must highlight the upside breakout taking place in the CBOE Volatility Index, as noted in the chart below … with an upside violation of both the long-term 200-Day EXP-MA and the downtrend line in place since 2008. The VIX appears headed for a serious test of KEY overhead resistance defined by the Jan-10 high at $27.31 and the Oct-09 high at $30.69 (ED Note: The VIX hit a high of 40.71 and settled at 32.80 yesterday)


In line with the attempted breakout in the VIX … we find the overlay chart on display below to be of interest, as we observe the interplay between the Dow Industrials UltraShort DOG (black bars) and the US Dollar Bull ETF (UUP, blue line) … revealing a complete BREAK from the normal, historically tight positive correlation, suggesting that, either … the stock market is HIGHLY vulnerable here, or, there has been a secular decoupling. 

We believe that the odds favor the former, and thus a ‘reconciliation’ of the positive correlation via an ‘adjustment’ in the stock market.



We have been bearish on the Eurocurrency for MANY MOONS, since last fall, on the premise that the current debt-deficit-debacle is SECULAR in nature, and is such so that it will NOT be easily ‘papered over’, monetarily. 

In Money Monitor after Money Monitor, we have repeatedly screamed that the EU crisis will INTENSIFY, and, moreover, will likely take YEARS to ‘resolve’ … years of fiscal austerity, and PAIN. 

Note Tuesday’s extension to the bull market in the UltraShort Euro ETF.



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