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Volatility Spike - and possibly a good sign

Started by pkamm, 10/10/2008 10:59PM
Posted 10/10/2008 10:59PM | Edited 10/10/2008 11:01PM Opening Post
The VIX went bananas today. Rising persistently for 6 weeks, it seemed to go parabolic in the last 2 days. This is basically a measure of fear (and/or lack of liquidity) in the market and it reached just an insane level.

High VIX combined with great volume implies we had an extreme level of panic and fear in the market today. Despite the panic, the indices were barely off from the open despite a wild round-trip throughout the day. The high volume, huge movement with little net change, and extreme level of fear present indicates to me that there *could* be a local bottom here. Also the banking index (BKX) *may* have just successfully executed a double-bottom formation. The 30-year bond yield may have just achieved the same thing.

Catalysts for a rally or continued selling may come over the weekend with the G-8 emergency meetings going on. We may get yet another rate cut soon. If there is a rally, it may be truly explosive as the fear level has been extreme and the money supply is growing fast. If Morgan Stanley or somebody similarly big folds up, with the VIX still at feverish levels it could be a setup for a really really bad day.
Posted 10/10/2008 11:58PM #1
Some of the market pundits are suggesting the G8 meeting might temporarily close the markets for a day or two while their plan, whatever it is, can at least be partially implemented. The market pundits seem to feel something highly radical needs to be done to stabilize the markets lest more blood letting occur...