The Rally Plays Peek-A-Boo

Even the oft-bullish Don Hays of Hays Advisory Group expressed concern about the sub-20 VIX on Friday, writing: "In every case the VIX moves above 40," as occurred intraday on March 12, "the resulting low in the next few days will be the low from which no serious intermediate-term risk will occur until [the VIX] drops under 20."

Hays said this "40-20 rule" has "never failed to work in its relatively short 18-year history," and recommended short-term traders employ a bit of caution in the coming weeks.

True to (recent) form, however, Hays tried to put a bullish spin on things, suggesting this sub-20 VIX reading might be different. (As an aside, several readers believe the VIX is merely returning to its historic average in the mid-to-high teens and that 20 will prove to be a new ceiling for the index. Mean-reversion may occur, but I don't think it's going to be so quick and easy as this recent decline implies.)

On Monday, the strategist took umbrage with the notion that there's too much bullishness, citing "huge open interest" in the Nasdaq 100 August puts and more than $4 trillion sitting in "low-yielding" savings accounts and money market funds. "Too bullish -- you've got to be kidding."

Old Gurus Never Die

But seriously ... Hays, once a favorite of this column, damaged his credibility with readers by being steadfastly bullish in 2001 and 2002. Not surprising, he has become even more emboldened about the bullish view in recent months.

In a separate but related note, Tom Galvin of U.S. Trust is scheduled to be a featured guest on CNBC's "Squawk Box" Tuesday morning.

For those with short memories, Galvin was the strategist at Donaldson Lufkin & Jenrette and then Credit Suisse First Boston after it bought DLJ. This column dubbed him the king in 2000 and closely followed his exploits before he was deposed late last year, presumably for being steadfastly bullish during the downturn.

Galvin's re-emergence only provides more fodder for those who believe we're now going through a mini version of the 1990s speculative mania.