The bearish window is closing quickly

Mid-week market update: I highlighted this chart as a possible warning on the weekend (see Melt-up, or meltdown?). In the past, high levels of correlation between the S&P 500 and VVIX, the volatility of the VIX, has generally led to market stalls. In addition, high correlations between the S&P 500 and the VIX Index has also been warnings of market tops. We have seen 14 similar warnings in the past three years. nine episodes were resolved in a bearish way (red vertical lines), and five saw the market either consolidate sideways or continue to rise (blue lines). 

The bulls are on the verge of dodging a bullet. All of the bearish instances saw the market decline soon after the signal. It has been a week since correlations spiked on December 2, 2020. While the S&P 500 is testing rising trend line support as NYSE net highs surged, there is no sign of a downside break. Moreover, NYSE breadth, as measured by advances-declines, was surprisingly positive even as the S&P 500 fell -0.8% on the day.

Tactically, the bearish window is closing very quickly. Today's decline may be the bears' last chance.

The full post can be found here.