Monday, October 3, 2011

VIX indicates stock rebound

VIX Record Gain Signals Stock Rises Since 1990

The biggest quarterly increase ever in the Chicago Board Options Exchange Volatility Index pushed it above 40, a threshold exceeded only three percent of the time in 20 years and a level that has preceded stock rebounds. “A very high VIX level suggests investors have given up, they’re out of the way, and that’s a great entry point,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion, said in a telephone interview. “It’s a contrary sentiment indicator, so when the VIX surges, it says bearish sentiment verging on panic is surging. And the market’s a good buy.”
Comment: There is no such thing as a fully reliable indicator. Nevertheless, indeed, the market may be temporarily oversold.

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