Fear & Loathing: VIX Soars Above 50 As DJIA Takes Out 10,000

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For those who have been wondering what a full blown bear market looks like, welcome to the jungle.  This looks like another day where along with the bath water, they are throwing out the baby, mommy, and the nest egg.  The DJIA has broken back under the 10,000 mark for the first time since April 2005.  To show an example of just how oversold the markets are becoming, the CBOE Volatility Index, or the VIX, is challenging 50.0.  There were some quote variations as a print hit the tape as high as 51.27, but we currently show the high being just over 51.13.  Regardless, which level is accurate, these are massive readings.

Traders generally start to look at buying stocks for oversold bounceswhen things are still plausible when we see prints north of 30.0 on theVIX.  At 40.0 it really looks like a pressure is building.  At 50.0 andhigher, let’s just say that "the fear index" looks like crack addictsare talking about how much they are losing in the stock market.

The VIX traded north of 40.0 for much of summer 2002 and reached ashigh as 43.74 in September 2001.  Today’s financial crisis if youlooked just at the VIX alone is showing a more fearful group of marketparticipants than after the terror attacks in September 2001.  The lowswe saw in the DJIA in the immediate aftermath of September 2001 was7.926.93.  The lows seen in 2002 (October) went as low as 7,181.47 andthe lows after a late 2002 rally into 2003 were back down to 7,397.31.

This is what you call a major crossroad.  We are either about to getone hell of a bounce, or we are about to see things get much worse.This looks like a sequel movie or a re-telling of a movie very few want to see again.  This new titleis "Fear and Loathing on Wall Street."

Jon C. Ogg
October 6, 2008