And so just like that, reality began to hit the market and they started selling. Investors didn't want to be left holding the bag when the Fed pulled the punch bowl away. After some well-timed soothing words from various Fed officials, the markets settled back down for a couple months only to spike lower again in December. Then more soothing words followed by more rallies. And so on and so forth it's been.
The net result, as shown in the graph, is a VIX that's starting to consolidate at what I will characterize as an uncomfortably high level. The 50 dma crossed over the 200 dma back in October and has been rising ever since. Momentum indicators are staying stubbornly high suggesting further volatility ahead. So in the near term, it looks like the VIX might continue to chop up and down as it works itself into the corner of that wedge - perhaps another month or so. As with most consolidation patterns, it will have to then make a decision, break up or break down. Regular readers know I have been postulating that the markets are starting to roll over. If that's the case, then the VIX should break up and out of this pattern. Which, in turn, means that we need to buckle up as the road ahead is going to be very bumpy.