Stocks had a relatively dull Monday, as noted by the S&P 500 equal-weight index , which traded flat. If not for Meta’s (NASDAQ: META ) nearly 4% and Nvidia’s (NASDAQ: NVDA ) 2% dead-cat bounce, the market cap weight index managed to finish higher by around 40 basis points.

What was equally odd and disturbing yesterday was that the 1-month implied correlation index was higher. It is not often that the implied correlation is higher, rates are higher, the US dollar is lower, and the S&P 500 is higher. In fact, the implied correlation index has been higher for 4 days in a row now. Typically, when the 1-month implied correlation index rises, the S&P 500 falls. I found that to be odd.

The other notable development is that the US dollar weakened yesterday, with the USD/JPY dropping to 142.60. Interestingly, the S&P 500 also diverged from the USD/JPY yesterday. For the most part, the USD/JPY and the S&P 500 have been trading with each other for some time.

So really it is more of a question whether yesterday was the outlier for the S&P 500, and atleast based on the fact, that there was a significant divergence between the RSP and SPY yesterday, you have to think that S&P 500 market cap weight index was the outlier, given the moves in Meta and Nvidia.

From a technical perspective, a reversal from here is becoming increasingly more challenging, as there is no more room to move. So, if there is going to be a turn-down, it needs to happen and needs to happen soon.

I would still contend that the move higher is just as challenged, just because the VIX has a lot of gamma built up at 18, and that is likely to support the VIX. If the VIX can’t move lower, it will be hard for the S&P 500 to rally.

At this point, we have to shrug our shoulders and see what happens. I’d be surprised, though, to see implied correlation continue to rise, implied volatility rise, the dollar sink, and the S&P 500 rally. So something will have to give.

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