Tuesday, March 18, 2008

Volatility and the 2000 top

I took a look at the 2000 top for the S&P and compared how volatility from then compared to now. During the 2000 peak there were four small sub-30 micropeaks, a sharp drop, then a rally to 35 which was associated with the cliff fall for the early part of the 2001 decline in the S&P. Monday's peak above the recent triple top may precede such a decline, although breadth indicators do suggest otherwise (i.e. this will shape into a double bottom).

However, it has been a while since the VIX has seen a spike to 45. It would be hard to argue against another one happening soon, which would mean more pain for the markets.



The Fed may bring some short term welcome relief, but when the guts of next rally are done we could have the kind of setup where a VIX spike to 45 would be favored. Perhaps September/October of this year??? Who knows, but the beast is out there - lurking, waiting to strike.
 
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