Volatility Index…

Also known as the fear gauge. In February (blog) we spoke about not getting too complacent and assume that this 2 year bull run would just continue to go without interruption. We also spoke about the VIX and how this widely followed index was trading well below 20 and as low as 15, which is an indication of how confident investors were back then. Fast forward to today, and now let’s take a look at the chart of the VIX chart. Clearly you can see that just in the past 3 weeks or so how much volatility has increased with the VIX index nearly doubling in price. So what does this mean? In hindsight it was obvious that the market was overdue for a correction and all it needed was a catalyst to correct.

Certainly the Middle Eastern crisis could of served as “the catalyst” and in fact volatility did indeed increase due to the Egyptian and Libyan crisis, but unfortunately it took the tragedy in Japan to enact the real catalyst for this current market correction we are in.

Once again history repeats itself as it pertains to the VIX index, and the lesson is that any extended period of time the VIX trades below 20 and in this case it was almost 4 months, the market usually is due for some type of correction.

All the best,