Volatility has been white hot in the past few months. We have highlighted the impact of volatility on market movements in previous reports. The volatility index (VIX) is referred to as the fear gauge and has been at historic highs in recent months. The market movements of late have been spectacular, as you can see from the attached chart. The VIX spikes have coincided with significant down moves in the S&P500 and consequently on other world markets.
What this means is that traders are now more prepared to hold positions, while at the same time they are hedging all or part of their holdings.
The markets are desperately trying to form a base in the short term. Markets in the US have priced much of the bad news into the equity prices, this is confirmed by the fact that is the past week or so it has been able to shake off the barrage of bad news that seems to appear daily. The key catalyst in the short term will be some resolution to the Auto Bailout package, with the White House acting as the white knight; then then implementation of the TARP program. Keep an eye on the NASDAQ and the Dow Jones Transportation index as lead indicators for any recovery.
In Australia the ASX has been consolidating above the October lows and a close above 3750 will be a trigger for an assault on the 4000 then possibly the 4500 levels. We remain in a bear market but we are looking for a bear market rally in the near term.
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