Interpreting the Action in the VIX - Mike Swanson (10/04/2013)
Yesterday the DOW fell over 100 points and today before the open the DOW futures are up 20 points for a little gap up.
Is the correction over?
To answer that I like to look at the VIX "fear index" which measures the premium investors pay for volatility in the options market. On bottoms people often get scared and buy a mass of puts to hedge their positions - which causes the VIX to spike up.
So you can see in this chart how in past bottoms the VIX jumped above its upper 200-day Bollinger Band and then had a key reversal day - a day in which it went up a lot during the day and then fell to close in the red.
Yesterday the VIX jumped up a lot and closed above its upper 200-day Bollinger Band. That suggests a bottom is close. However, it didn't have a key reversal day - which means that right now we cannot point to the VIX as proof that the current correction has come to an end.
My guess is that we'll see the S&P 500 go through its recent low within the next few days to scare a lot of people and bring a final bottom.
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"Christine Lagarde, the IMF's managing director, urged America's politicians to settle their differences before the dispute harmed the entire global economy."
"Speaking ahead of the fund's annual meeting in Washington next week, Lagarde said it was "mission critical" that Democrats and Republicans raise the US debt ceiling before the 17 October deadline. Lagarde said the dispute was a fresh setback for a global economy that would take at least a decade to recover from the slump of 2008-09."
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My book was discussed in this interview at the 24:30 mark.
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