I have received countless questions from folks asking about the VIX. The questions center around the fact that we have so many of those short ETFs around now; is it possible that we're not getting folks playing the options markets anymore? So in case this question is also on your mind, let me discuss it here.

First of all, longtime readers know I do not like to rationalize an indicator. We had these short ETFs in August of last year, and the VIX jumped. We had these short ETFs in January, and it jumped then too. We surely had them in March, and the VIX had no trouble spiking. So even if you want to rationalize "why" the VIX has not gotten jumpy yet, this doesn't seem like a plausible reason to me. If it were the case, we would not have seen it jump in those three previous instances.

But now look, despite all the silence yesterday afternoon about the VIX, it is starting to make a move. It has quietly crept up from 20 to 26. Any big down move in the market in the coming week could easily spike it.

I would much prefer to see the equity put/call ratio surge over 100%, but I'd even take something in the 90s at this point. Yet it steadfastly refuses even to move over 80!

What I would note is that there were far fewer stocks making new lows yesterday. The S&P didn't quite break the previous low on an intraday basis (1256) but it did make a new closing low, and the number of stocks making new lows was 404 vs. the previous day's reading of 652. That is quite a big divergence. If it can keep that divergence up and break the previous intraday low on the S&P and get the VIX jumpy or the put/call ratio rising, then we'd be onto something in terms of a better rally, or at least something more than an oversold rally.

But so far we haven't. I have said before that this year reminds me of 2006 in reverse. In 2006 we bottomed in July, and the put/call ratio stayed high for almost the remainder of the year. We hardly had selloffs -- the downside consisted of one-day wonders. This year we can't seem to get the put/call ratio to rise, and the rallies are one day wonders!

The four-year cycle folks told us there would be a low in fall of 2006, so everyone kept waiting for that low. It never arrived, and we kept on going up. Of course, I do not adhere to all those cycles, such as that one or the presidential cycle that folks cite this year. It seems we're supposed to rally in a presidential election year. So far, this year is not shaping up as a typical election year either, just as 2006 did not shape up as a typical four-year cycle low.

The bottom line is that the indicators are all moving into place for a rally, but we need sentiment to join in.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.