Thursday, September 18, 2008

Volatility Index VIX above 40.

Chicago Board Options Exchange's Volatility Index (VIX), also called the fear index, crosses above 40 today. The last time the index reached this level when S&P 500 double bottomed on October 2002 and February 2003.

Peaks in the VIX are usually associated with market bottoms because climaxes of fear are times when everyone who's ever going to sell has sold — and when all the sellers are out of the way, the buyers have the field all to themselves. Take a look at the peaks in the VIX — the crash of October 1987, the oil crisis before the Gulf War in 1990, the global financial crises of October 1997 and October 1998, and the panic following the terrorist attacks of September 2001. All these were excellent buying opportunities. And now we are approaching another one.

Since 1986, when VIX has started to be calculated, average 12 months return after VIX reached level 40 is 16.9%.


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