Watch the vix and the russell

German companies are talking about slowdowns starting to put pressure on the second half estimates, and miners still talking about a drop in demand, US jobs numbers came in less than expected, and China is still trying to stem debt growth without dropping below 7% GDP growth.  These are all negative signs to see in a global economic outlook, but one key indicator is missing: The VIX.

With the Wall Street fear gauge nearing record lows it seems the market is content as ever with the situation in the global markets.  Being somewhere in between improving growth and still weak enough to need assistance, the markets have been flirting with higher highs recently.  This could prove a nasty fall if the news doesn’t continue to be the right mix of good and bad.  The short play of the Russell 2k is still something I would look at as the past few days have confirmed that the money that has been recently pushing these companies higher is getting more in line with the Emerging Markets returns on a daily basis (less the currency difference).  This trend will continue if the markets start to take into account the news around the globe.

An increase in the VIX can be looks at as an increase in the correlation between the Emerging Market stocks and the Russell 2k index.  Should the Fed feel that more stimulus is required from this pull back you may see emerging markets recover faster as well.