The VIX Crosses Above 30....An Omen, Or Closer To An Extreme

DJIA                     12,861.47; -167.45 (-1.29%)
S&P500               1,406.70; -19.84 (-1.39%)
NASDAQ             2,458.83; -40.29 (-1.61%)
10YR- Bond        4.706%; -0.026%
NYSE Volume    3,365,515,000
NASD Volume    2,267,149,000

The CBOE VOLATILITY INDEX, or the beloved "VIX," has crossed back above the 30 threshold now. This is the near-term high for that index.  The DJIA didn’t just close under 13,000, it closed under 12,900.  It would be easy to put on a bargain hunter’s hat and try to say this is a great buying opportunity, but trying to fight the tape is something that has be done by those with unlimited resources or by those that don’t need to worry about short-term fluctautions.

As far as the year is concerned, the DJIA is still up but barely.  The DJIA closed at the of DEC-2006 at 12,621.69 and we closed at 12,861.47 today.

Today’s weak market close puts us at a recent high on the VIX that hasn’t been seen March 2003 when the VIX got as high as 33.61 after seeing highs north of 34 in the months before that.  In July and August of 2002 the VIX traded up in the 40’s, the same as after September 11.

As we get to extreme readings in a call and orderly day, why is it that it is easy to get the feeling that we are going to have to get a major shakeout day before the selling climax feels closer?  A 400-point drop is historically just a run of the mill bad down day on a percentage basis, so we’d be considering something far worse if this feeling is true.  Hopefully it won’t come to that.

Here were some winning DJIA components just last week when the market was as bad as today.  We also discussed defensive stocks for a crummy market, and those are the sort of stocks investors usually flock to when they want to go for a safety net but still be exposed to the stock market.

Jon C. Ogg
August 15, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.