It’s almost officially a bear market

A bear market is defined as a 20% drop from the high and with today’s close in the Dow we are a mere .01% from that. The trading floors are alive with the sounds of growly bears and there is much gnashing of teeth…

But the VIX, which measures volatility, tells us we are not yet near the bottom, which is generally a capitulation point filled with panic selling and a feeling of imminent doom.

This 1 year chart shows the Dow Jones on top and the VIX on the bottom. Note how when the VIX spikes above 30 that the Dow is at a low point. Moreover a VIX above 30 often signals an imminent reversal in the market. This is when traders with nerves of steel start buying, precisely when everyone else is panicking.

But the VIX is nowhere near 30, yet the DOW continues to drop precipitously. The bear, it appears, may just now be waking up.


2 Responses to It’s almost officially a bear market

  1. John, Fitness Austin Sun, Jun 29, 2008 at 6:55 pm #

    With all the news about being on the cusp of a bear market the market is facing a strong headwind. Inverse EFTs have worked well for me last week. People are talking about a bounce; I don’t know.

  2. Bob Morris Mon, Jun 30, 2008 at 10:28 am #

    I’ve been buying puts on financials. I generally go 4-6 months out and buy a bit in the money.