Ok, I am confessing that as a youngster and throughout my adult life I have never been able to handle the steep ascents and descents associated with those amusement and theme park roller coasters. The most adventurous ride you can get me on is a possible Flume ride since getting wet on the way down helps me avoid thinking about the fact that I feel my stomach is somewhere up in my throat! But no way will you get me on one of those pulsating death defying (in my mind) roller coasters with intimidating names such as El Toro, Superman Ultimate Flight, and the Great American Scream Machine, which can be found in my home state of New Jersey at Six Flags Great Adventure.
So with that kind of a mindset I am asking myself these days why do I have to deal with yet another kind of roller coaster that I find to be to my disliking? That turns out to be our current stock market environment! It is definitely a wild ride. One of the measures that we observe in monitoring market activity is an index that is known as the market volatility index or “VIX.”
This is an index designed to track market volatility as an independent entity. It is calculated based on option activity and is used as an indicator of investor sentiment with high values implying pessimism and low values implying optimism. There are three volatility indexes in the Chicago Board Options Exchange which track the three main stock indexes. The VIX is the most widely used, tracking the S&P 500, but there also is the VXN which tracks the Nasdaq and the VXD which tracks the Dow Jones Industrial Average.
Looking at the VIX over the month of May it started at the beginning of the month at a value approximating 20, as it is measured, and hit an intraday high of 48+ mid month. That is a serious increase in volatility over a short period of time not to speak of the rather significant day to day moves that we are experiencing. As I write this article the value is approximately 30. So let’s see now….20….up to 48….down to 30, hmmm, no wonder I feel like I’m on a roller coaster, and I don’t like it.
My problem, however, is that whether I like it or not, we are going to have to ride this out as I don’t see any way for any of us getting off of it any time soon. We have had a week where we witnessed the Dow one day up nearly 300 points and yet another day down over 300 points. As long as the global markets are faced with the continuing pressures of attempting to implement austerity measures and getting fiscal “houses” back in order, the ride is going to be rather precarious. I suggest making sure your seat belt is on tight!
