Some would argue that the consolidation seen over the last week or so is consistent with the bullish trend and is simply the removal of overbought conditions that might have otherwise been accomplished by a more dramatic reverse. This theory may prove correct. There were 13 new highs achieved without a three session pause as indicates a somewhat stretched trend. However, the strength of the bullish trend is very much in question as a result of this unusual consolidation. Although we remain big fans for the multi-year prospects for domestic equities in general, we feel little is given up by choosing to sideline some equity risk until this episode passes either with or without a serious bearish correction.
Finally, I would note that the VIX continues to support the prospects for a more storied event forthcoming. The index advanced little over 2 percent today and gave back considerable intra-session gains. However, there remains an open bullish window from several sessions ago and today's VIX price action is confirming of the bullish reverse in volatility. We shall look to Wednesday for further bullish VIX price action to confirm the bullish implications of today's 'inverted hammer'. Perhaps the Fed shall offer something less palatable for equity bulls in the Beige Book scheduled for release Wednesday afternoon.