Saturday, October 31, 2009

Volatility Skyrockets As Stocks Sink

For our last post we noted that the S&P 500 was quickly nearing its 500 day moving average and posited that it was unlikely to rise above that level.

Today we have further technical evidence that the stock rally since March is likely over, at least for now. The VIX, or volatility index, broke out of its downtrend on Friday with a massive 23.95% rise on the day as the S&P 500 fell 2.81%. The breakout is obvious on the six month time scale as the VIX hit 30 to rise above the previous peaks hit over the last few months (click on images for larger views):


On a longer time scale, we can clearly see that the uptrend in volatility since the bear market began in late 2008 is still in tact:


If either the S&P500 breaks above its 500 day moving average or the VIX falls back down into the low 20s, we will re-evaluate our stance. For now, all signs point towards this stock correction continuing.
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