VIX low S&P 500 high

By Colin Twiggs

May 20th, 2013 3:00 a.m. ET (5:00 pm AET)

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The VIX CBOE Volatility Index is below 15%, indicating investor confidence.

But the risk premium on Baa-grade bonds (Moody's lowest investment grade, compared to the 10-year Treasury yield) remains elevated. Corporate bond investors are still wary.

10-Year Treasury yields are headed for a test of resistance at 2.00%/2.10%. There is no sign of inflationary pressure, so outflow from Treasuries is more likely indicative of their extremely overbought position — with yields near record lows — and suggestions from FOMC minutes that quantitative easing may be scaled back later in the year. Breakout above 2.10% would signal a primary up-trend with an initial target of 2.40%.

The S&P 500 is advancing strongly. Rising 6-month Twiggs Money Flow indicates a healthy primary up-trend. The index is overdue for a correction, but this is likely to be reasonably mild.

* Target calculation: 1475 + ( 1475 - 1350 ) = 1600

Nasdaq 100 also signals a healthy up-trend, advancing towards a target of 3400*.

* Target calculation: 2900 + ( 2900 - 2500 ) = 3400

Bellwether transport stock Fedex respected support at $90. Recovery above $100 would confirm the primary up-trend is intact. A bullish sign for the economy.

Follow the trend but keep an eye on risk measures like the VIX and Baa risk premium. These are uncertain times.

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Injustice anywhere is a threat to justice everywhere. We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.

~ Martin Luther King: Letter from Birmingham Jail