I’m a very lonely voice in equity markets right now. Technically nothing has really surprised me yet, not the $VIX crush to the February gap fill, not the move toward the 4156 zone on $ES, all of these were part of the risk spectrum since the beginning of the year. The only surprise here is the velocity of the prices, the complete lack of respect for any deviating correlations such as moves in the dollar and yields. Everything continues to be ignored. But because things are ignored doesn’t mean they don’t matter.

Nothing matters inside of a bubble until it does. The phrase new paradigm is becoming ever more prevalent to justify prices and the tape. Truth be told, there is no new paradigm except this one: More artificial liquidity than ever and more debt spending than ever and as a result people chasing stocks into higher valuations than ever. That’s it. There is no mystery.

As such markets have turned entirely risk free and down days have been eliminated:

And so far the warning signs from weakening internals have not mattered. But it’s a process, it always is. Hence being cognizant of structures, patterns and history is critical to manage exposure and positioning.

So the $VIX 2020 gap has been filled and $VIX has been compressed again.

Let’s revisit the $VIX here:

What is noticeable is that there is once again a steep compression pattern forming as $SPX has once again revisited its upper trend line. In context of the 1.618 technical fib risk zone this is remarkable confluence for $VIX will hardly need to see more than one market down day to threaten a bullish breakout.

For bulls the ultimate goal is to fill the even lower gap below, but the persistent volatility compression in markets has left a number of open gaps to the upside and they all suggest filling to come.

In the near term we can identify 4 open gaps:

My assertion: All these will get filled at some point this year and perhaps sooner than most think.

Furthermore there’s a 5th gap higher up going back to April and this gap is not incompatible in target in context of the larger compression pattern:

All this suggests that markets are not as risk free as they are currently advertising themselves to be. Time will tell.

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