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It might be hard to pry your eyes away from the stock market today, but the real action is over at the CBOE volatility index, or VIX. There, panic is in the air.
The index, which provides a gauge of volatility expectations for the S&P 500, has been rising since mid-May. However, some observers believed that until the index rose above 30, there was little sign of capitulation (read: all out fear) among investors, and therefore there was little chance of a bounce. The reason? Without a spike in volatility, investors were merely holding onto their stocks, expecting good days ahead.
Well, the "30 bell" rang on Tuesday, when the VIX rose to an intraday high of 30.8 – a sign that could mean investors have turned decisively negative on stocks, leading to a bottoming-out process, at least in the short term.
“As I type this, the Dow Jones Industrial Average is down about 200 and the VIX has spiked to 30.79, largely as a result of prepared remarks by Ben Bernanke and a downgrade by Moody's of Fannie Mae (FNM) and Freddie Mac (FRE). As a result of these two developments, some capitulation activity has been accelerated and the likelihood of an intermediate bottom forming today, tomorrow or Thursday is now over 95 per cent,” said Bill Luby, who writes for the Vix and More blog.
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