VIX Trades Over 29 and SPX Down 11.5% From Peak as Bottom Nears
Thu, Aug 4, 3:32 PM ET, by Bill Luby
Calling bottoms in the stock market is part art and part science, but with the VIX trading over 29 earlier today (high of 29.35) and the S&P 500 index having fallen 11.5% from its early May high, the markets are likely nearing a bottom. In fact there is a good chance that today's SPX 1212.56 intraday low may indeed be that bottom.
Sure the problems with the European sovereign debt crisis deem to be at least one step ahead of the European Central Bank and there are widespread signs that economic growth is slowing across the globe, but a number of market sentiment indicators and technical factors suggest that the selloff in the past two days has been overdone and way too emotional.
As the table of SPX pullbacks below illustrates, the current selloff is the second largest in terms of magnitude since the bull market began in March 2009. It is now the longest in terms of duration, spanning 66 trading days since the high of SPX 1370.
Those who want to initiate new long positions in this environment may wish to limit risk by using options (long calls, bull call spreads, bull put spreads, etc.), but the time has come for the contrarian in the asbestos suit to start at least nibbling on the long side.
[On a personal note, this blog has been quiet for a while as family matters, a vacation and three new computers have competed for my attention. With volatility back on the front page, I will be posting again on a daily basis (at least) in order to offer my perspective on volatility, some of its causes and the implications for trading.]
SDI Glossary: "Call" Definition
SDI Glossary: "VIX" Definition
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