Tuesday, May 12, 2009

The Fear Index (VIX) Falls to an 8-Month Low

The CBOE Volatility Index, also known as the "Fear Index," is a measure of the market's expectation of stock market volatility for the next 30-day period. Today the VIX fell by -3.26% and closed below the 32 level for the first time since September 16, 2008 (see chart above). Market volatility and the "fear index" are gradually subsiding and returning closer to normal levels.


At 5/12/2009 5:29 PM, Blogger Hot Sam said...

I don't think this is surprising.

There were lots of uncertainties regarding the ineffectiveness of the original TARP, the identity of the new president and what policies he'd come up with.

Even after the election and the appointment of Geithner, the initial response to their vague strategy was pretty poor. It took months before they came out with a coherent plan of attack.

Ultimately, they're back to buying troubled assets which is what TARP was originally intended to do. The market will soon react, though, to how well investors participate in the PPIP. There's actually more concern about the upside risk (policy reversal) than the downside risk. If you can predict which way that ball will bounce, you'll make a fortune buying or shorting stocks.

We also see a government commitment to bailouts. That may be good for certain stocks, but not so great for taxpayers. Experts are predicting imminent bankruptcy for GM.

I don't think the market has fully anticipated the effect of CRE on financial institutions. Sorry to keep beating that horse, but it's not quite dead yet.

Most of my money is in S&P Index funds and I'm in it for the long haul, so I don't have a dog in this fight.

At 5/12/2009 7:40 PM, Blogger juandos said...

Hmmm, I'm wondering just what CBOE VOLATILITY INDEX consider really investors should be fearful of?

Apparently the potential for new and improved taxes schemes that we might facing in the not to distant future isn't one of them...

At 5/13/2009 9:46 AM, Anonymous Anonymous said...

Low volatility is a sign of complacency and often an indicator of a short term market top. Buy when the VIX is high and sell when the VIX is low.

At 5/13/2009 11:25 AM, Anonymous gettingrational said...

Anon above makes a great point. The VIX has a remarakable inverse correlation to the DJI, NASDAQ Composite and S&P 500. I wish I the funds and patience put aside to invest when the VIX breaks out of the 30s. You can go to Yahoo Finance and get a quote on the VIX which will bring up it's chart. Click on to it then click on to compare. Check off all three indexes indexes for comparison and they show you graphically to buy the indexes when VIX is high and sell when VIX is low (in the 30s)


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