Chart Spotlight

Today we have your proverbial “I have good news and bad news for you scenario” (my favorite is the MD who says “You have 24 hours to live” and the patient says “Well what’s the bad News!” – I’ve been trying to reach you since yesterday!”). The good news is that I think we are with a month of the market making a bottom. The bad news is that we may lose a thousand Dow points in the process. Below are the two most popular volatility indices (we have talked about them previously), the VIX and the VXN. The VIX measures the volatility in the premiums on the S&P 500 options and the VXN does the same for the Nasdaq 100 options. What is most important about these indicators is that they tend to top out when there is significant fear in the stock market. The last several bottoms in the market have been made when are higher than they currently are. With the patterns we see among stocks in general, we am guessing these two indicators will top out in the mid to high thirties before the market bottoms. Again the could be around 10,000 when that occurs. We do believe that the rally on the other side of the correction could be just as significant, so those who can be nimble and accurate might have a fun ride on this potential roller coaster.

Did You Know…
The average US home increased in value by +36% over the years 2001-04. During this 4-year period, 25% of homeowners extracted some of the equity build-up in their primary residence through a home equity loan. Of those homeowners who borrowed against their home equity, 34% reinvested the borrowed funds into other investments, e.g., the stock market, other real estate, or a business venture. Did the rest fund their lifestyle? (source: Office of Federal Housing Enterprise Oversight, Center for Retirement Research)

Final Thought
“A black hole is where God divided by zero? – Stephen Wright