Inside Markets — Decelerating Momentum

The SPX keeps its bullish bias above 5375 and needs to break below 5230 to signal a potential reversal in our opinion.  Our current upside price objective is 5545, which implies upside of only +1.25%. The CBOE Volatility Index (VIX) remains supportive at subdued levels in the low double digits.  An SPX break below 5230 with a corresponding spike in the VIX above 20 would cause us to reduce equity exposure.

Rising equity volatility tends to follow rising bond market volatility (MOVE Index).  A lack of market liquidity can lead to increased volatility.  The US Government Liquidity Index (GVLQUSD) measures ‘yield error’ with high levels, suggesting a lack of liquidity.  The 50-day moving average of the US Government Liquidity Index is currently at its highest level in more than 20 years, signaling underlying Treasury illiquidity.