Humpty And The Historic VIX Short

Zero Hedge ran a story last evening, Has The Selling Of The VIX Come To An End? Apparently VIX futures positioning hit another all-time record short just two weeks ago. But I thought this chart said it all:

The story also noted that SocGen recently warned, "this historic level of non-commercial short positions (read speculative) implies any market correction - or VIX-related spike - would increase short-covering and exaggerate the fall dramatically."

Meanwhile "implied correlations have collapsed to the same level as right before Lehman and right before the US downgrade."

I found all of this extremely interesting in light of current market action -- it seems to "fit."

The way the VIX looks at the moment, 12.50 seems like it would be a good spot to use some calls. In that yesterday's close was 13.82, that would mean higher equity prices. But it would not preclude a shallow pullback before another leg higher.

1690.27 is the 78.6% level. 1695 is a weekly volume shelf. Beyond these levels I'd start anticipating the 1720 area. I continue to add OTM SPY puts.

Yesterday closed with just 106 net new highs vs. 499 before the May peak. Also A/Ds have been lagging badly, with yesterday seeing an inversion most of the day before ending slightly above 1:1. With stats like these, coupled with historic amounts of VIX shorts, it would not take much for Humpty to off the wall.