Market Thought... upside

In previous Market Thought posts I provided the fundamental, macro conditions that will facilitate upside. To date, I only pointed out the 1oyr treasury as the most important indicator to a year end rally (which is supported by the fundamental thesis).

Here is a second technical indicator for a year end rally.

IMO, the VIX over the SP500 for the current market dynamic tells the story. March 2009 to present represents the current rally, so from a current rally perspective we should expect the VIX to hit new lows before the end of the year.

At the start of 2010 the VIX bottomed at the indicated level. Months later the SP500 moved to a new rally high, and the VIX saw a new rally low. After this, the Euro mess facilitated unusually high VIX activity. (Normal VIX activity should be the mid teens to the high20s/low 30s, when omitting the credit crisis and threats of instability.)

Currently, the market is near a new rally high, yet the VIX is still slightly above the start of 2010 mark. With the stability justified via my fundamental thesis, and still very inexpensive market valuations, a very interesting set up has developed where I think the market will make new rally highs until the VIX approaches the April/May lows for the VIX.