VIX (aka CBOE Volatility Indicator) is used as a market sentiment indicator. When the VIX traded under 10 in 2007, it signaled extreme complacency (i.e. most investors are bullish and it is a bad time to buy long positions in the market). When the VIX hit 89 in October 2008, it signaled extreme “fear” (i.e. most investors were bearish and it was a bad time to initiate short positions in the market). Right now the VIX is not at an extreme level (bullish or bearish). But it is near support and is oversold, as shown in the chart. In terms of risk management, this tells us that there is a risk of a near-term pullback in the stock market (assuming 37.50 holds). However, a sustainable break below 37.50 on the VIX signals growing confidence by investors that this may be more than a “bear market rally.” Bottom line: this is just one sentiment indicator to keep an eye on. Must be taken into account with fundamental analysis relating to the economy, earnings, interest rates, and commodity prices.
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Tags: VIX
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http://online.wsj.com/public/resources/documents/Recommendations.pdf
April 8 (Bloomberg) — U.S. stocks gained, snapping a two- day losing streak, as life insurers jumped on prospects of a government bailout and Pulte Homes Inc. agreed to buy Centex Corp. to create the nation’s largest homebuilder. The S&P 500 Index increased 1.2 percent to 825.16. The Dow Jones Industrial Average rose 47.55 points, or 0.6 percent, to 7,837.11. Four stocks gained for each that fell on the New York Stock Exchange. The MSCI World Index of 23 developed nations added 0.5 percent. For more read Bloomberg http://www.bloomberg.com/apps/news?pid=20601087&sid=aqu7ptDh_q9o&refer=home