Current Stock Market Volatility
Monday, October 10, 2011 at 2:38PM Whenever there are good times in the stock market, we tend to forget the bad times, and vice versa. Does anyone remember when the stock market would only go up or down a few points per day? I watch the market DAILY and during the 2008 crash, we had several weeks of +/- multiple PERCENTAGE points in a single day. Volatility was going sky-high to levels never seen before. The Volatility Index (VIX) hit as high as 90 when the previous high was in the low 40s since 1990.
Well, there is good news for those who are worried about current market conditions. High volatility (read as "fear") is usually a sign of good times to come. How long are the good times to last? No one knows...no one even knows when they will come, but recent evidence in the volatility market may be an indicator that we may be headed for some nice gains in the stock market. Is it for sure? Of course not! See below in the chart of the VIX and the S&P performance...as you can see, when VIX is high, S&P is low and vice versa.
As you can see above, as the VIX (blue line) is up, the S&P (red line) tends to be going down and as the VIX is down, the S&P tends to go up.
If you think about the logic, it makes a lot of sense...When fear (VIX) is low, everyone wants to buy stocks therefore stock prices go up! When fear is very high, everyone wants out of stocks thinking the world is going to end, and therefore stocks go down.
Look at the years of 2008 and 2009 and how high VIX went and how low the S&P went. When fear was at it's highest, it was a great time to buy. The old Warren Buffett adage: When people are fearful, be greedy. When people are greedy, be fearful.
Reader Comments (1)
that s right but sometimes it happen opposite