The only indicator not pointing to a bounce in stocks has been the volatility index VIX. At the market lows in August and November the VIX spiked to 37.50 and 31.09 as seen below indicating a panic. Today the VIX climbed over 4 to hit a high of 28.51, breaking the trend line made by the two most recent VIX highs. Volatility usually spikes at turning points and it appears we are close to one in the markets with this kind of action. The VIX could spike further up into the 30's sure, but after today's 17% gain its probably time for a relief rally. I am now in some beaten down growth stocks (WFR, SIGM, JASO and ICE) and cash, it seems to risky to stay short here.
On a side note, I have very very perplexed by the VIX basically going flat since the start of 2008 while the market basically crashed (nasdaq is down more than 10%). This is quite unusual and seems to indicate a general complacency about the decline but there are other theories. It might be possible that as we enter a new regime for the market (bear mode) the usual indicators may fail to work like they used to. Specifically, in a bear market volatility may tend to decline with prices as they "trend." Whereas volatility might spike on sharp short covering rallies, it makes sense to me but this goes against the usual "volatility spikes at market bottoms" idea. I have also wondered how the put to call ratio has been able to steadily climb lately while volatility remained dormant. This is generally a rare event for markets and has been suggested to be a very bearish scenario.
2 comments:
Is this a "recent comment"? cool!
I thought I would just throw it up there, so we could mess with it this weekend.
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