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Friday, 03 October 2008 |
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By Lynn Carpenter
The CBOE Volatility Index hit a new high. Both Rick Pendergraft and I have been watching to see where the index would go. We were looking for 37.50, but neither of us expected the spike we saw on Monday when the bailout vote went down to failure in the House of Representatives.
The VIX measures how volatile the market is and traders watch it because when the values are extremely high, it means the market is extremely fearful. This affects options prices. But it also tends to foreshadow big, booming recoveries off of a market bottom. I’ve been saying for months that I expect a recovery sometime in the October to December period, probably after the election, but perhaps sooner if one candidate pulls ahead. The VIX hints that may turn out to be the case:
After the September 1998 high in the VIX, the S&P 500 went from around 950 to 1527 by early 2000.
Octobers tend to be good when Septembers are bad. We can hope.
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