These are the unofficial market closes, and note how close the DJIA is to 14,000 again…….

DJIA           13,820.84; +54.14 (+0.39%)
S&P500    1,525.56; +6.81 (+0.45%)
NASDAQ   2,671.22; +16.93 (+0.64%)
10YR-Bond  4.632% (-0.04)

The CBOE VOLATILITY INDEX, or the famed "VIX" has given back all of the "Fear" out of it being referred to as "The Fear Index."  Back in August this crossed 30 for the first time in what felt like ages, and now this is finally back under 20.00.

When the market was humming along in early summer it was trading under 13.0, which is quite low historically.  As far as how this works, it is pretty simple: As the nominal value of the index rises it reflects broad selling and broad fear; and when it starts reaching extreme levels it gets used to measure extremely oversold conditions.

As the index gets very low at say under 15.00 (in recent times anyway), it shows that goldilocks lives and no one is worried.  In essence this measures the cost of limiting downside in put options.  Here is a more formal explanation: The VIX is a weighted blend of prices for a range of S&P 500 index options that measures the market prices for all out-of-the-money puts and calls for the front month and second month option expirations.

• Previously we noted that when the VIX crossed 30 that it was making an omen or being closer to an extreme;
• Here is a sample of when it started getting juicy again over 20;
• Here we noted in February how no one was scared and no one wanted protection.

The VIX is now at 18.70 (unoffical close), down 1.75 and that will be the first sub-20 close since July 25, 2007.  Here is a BigCharts.com chart:

Jon C. Ogg
September 21, 2007

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