Historic Rally Sets New Records
We are watching the S&P 500 post its ninth straight gain, which is pushing the index into fresh record territory. A tenth consecutive gain would mark the longest daily run since 1995, putting this rally in a historic context. The market is also on track for its tenth weekly gain, a streak unmatched since 1985. This sustained upward move has pushed market volatility to near-historic lows, with the VIX currently trading around 12.5. Such low volatility readings make options relatively inexpensive. We see this as an opportunity to buy portfolio protection at a discount before any potential market turbulence returns.Evaluating Risk and Hedging Strategies
Market sentiment is also running hot, with the Fear & Greed Index now showing a reading of 85, firmly in “Extreme Greed” territory. Historically, such high levels of optimism can be a contrarian signal, suggesting the market may be vulnerable to a reversal. This reinforces our view that downside risks are growing. In the coming weeks, we believe it is prudent to start hedging long positions. We are looking at buying S&P 500 put options or VIX call options to prepare for a potential pullback. Key catalysts like next week’s CPI inflation data and the subsequent Fed policy meeting could easily disrupt this calm market. Past performance shows these powerful rallies are not always sustainable in the short term. While the streak in late 1995 was followed by more gains, it also preceded a notable market correction in early 1996. Therefore, we are not necessarily calling for an end to the bull market, but rather preparing for a period of increased volatility.Start trading now — click here to create your real VT Markets account.
