The equity markets are in the process of "recovering" or working on an "oversold" condition. If the equity prices are recovering, then we should see the major averages break out to new highs sometime over the coming months. If on the other hand equity prices are working off an oversold condition, then we should see equity prices continue to rally for a while, then fall by at least at least as much as the first leg down that started in late January. Those that have been following our work know we think the odds favor another leg down before this correction is all over.
We think this is a good time to take another look at the volatility markets to see what hedgers and options investors might be doing to prepare themselves for the price action ahead.
