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Monday, May 24, 2010

What Was That Famous Line From JP Morgan ?.....

When asked for his forecast for the stock prices his reply was "they will fluctuate".
Well I would add a bit to that forecast for the near future....they will fluctuate alot. Faced with this prospect and the ability for retail investors to buy volatility in one instrument (vxx and vzz) I would see that as a far more logical move than trying to pick bottoms or tops.Mr. Market is giving at this point that the beginning of summer will be quite interesting for investors.

From the WSJ:

The sudden downdraft in world markets demonstrates that, despite more than a year of stock recovery, investor confidence in the wake of the financial crisis remains uncommonly fragile.
Until a few weeks ago, the market seemed to be returning to a pre-crisis norm. Commonly watched gauges of investor anxiety had tumbled to levels seen before the crisis. Corporate profits and economic growth proved surprisingly resilient, quieting investor doubts about the rally's staying power.
But Europe's difficulties in resolving its debt problems, the "flash crash" of May 6 and the national debate over the proper role of the nation's top banks have again put investors on edge, reawakening the fear and anxiety of the financial crisis that were lurking just below the surface. The sudden surge in gauges like the Chicago Board Options Exchange's volatility index, a commonly used barometer of investor anxiety, and the sharp correction of major stock indexes showed just how nervous investors are.
That suggests that more volatility is in store and future stock gains could be harder to come by.


Another strong sign of investor anxiety lately is their return to options to hedge risk. In times of increased fear, investors buy put options, permitting them to sell shares at a prearranged price, which helps protect them from losses in the event that prices suddenly fall.
The CBOE's volatility index, or VIX, is a measure of options demand. On April 20, with stocks and investor confidence rising, the VIX finished the day at 15.73, down where it was before the 2008 financial crisis began in earnest.