More Good News

Just before Christmas, I reported that the CBOE‘s Volatility Index (^VIX) had fallen from “an apocalyptic 80 percent” to a merely extraordinary 45 percent. And I said:

When it drops below 30 percent, it will be a strong indication that the market correction is complete and we’re back to business as usual.

Happily, we’re going to get a chance to see if I was right. This week, the VIX fell below 30 — closing at 28.80:

Thirty percent volatility is still 10 percentage points higher than normal. So the roller-coaster ride may not completely be over. And returning to normal volatility does not mean that the stock level will return quickly to its pre-crisis level. But it is a sign that the worst gyrations may be behind us. In fact, we may not want a rapid upturn in prices.
A friend (who is net long in the market) quipped yesterday that the only thing better than the stock market going up 3 percent on Tuesday would be if it had only gone up 1.5 percent.
But we should take it as good news that after a substantial stock price run up on Monday, the VIX responded on Tuesday by falling — a sign that the increase was moving us toward lower future volatility.