Monday, December 12, 2011

Volatility Drops Even as Market Plunges

Typically the Volatility Index ($VIX) does the inverse of the stock market. If the market plunges, investors seek protection and the $VIX soars.  Today the market close down roughly 1.5% yet the $VIX dropped 2.7%.

On top of that, while the market has churned the last 3 trading days, the $VIX is much lower. 

This could be a very bullish sign for the markets as less volatility tends to lead to better markets. Less fear and panic means investors are becoming more comfortable with the debt crisis in Europe. Maybe not more comfortable that all the plans will work, but clearly comfortable that the risks of a collapse have been removed. 

Click to enlarge. 



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