Transcripts

The Markets Are All About The Vix

SUSIE GHARIB: The big buzz on Wall Street is about the Vix. This is a closely watched measure of market volatility and sometimes indicates the direction of trading. Today the Vix touched its lowest level since last September, right before Lehman Brother s collapsed. But, as Suzanne Pratt reports, there are mixed opinions on the Vix.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The panic that gripped Wall Street just a few months ago appears to be moving on. At least that's what Wall Street's fear gauge, also known as the Vix, currently suggests. The Vix is a popular measure of expected volatility for the S&P 500 index and it trades on the Chicago Board Options Exchange. Many market pros, both technical and fundamental, watch it closely because of its inverse relationship to stock prices. Last fall, as fear dominated financial markets worldwide, the Vix surged to 80. The spike higher set the stage for the stock market's relief rally in March. As stocks surged, the Vix dropped, recently falling back below 30. On the surface, less fear and volatility in the stock market seems like a good thing. But Oppenheimer's Carter Worth says it may suggest a selloff is coming, particularly because stocks have moved so far so fast.

CARTER WORTH, CHIEF MARKET TECHNICIAN, OPPENHEIMER: We take the complacency in the Vix as a warning that the current nine week uncorrected rally in equity markets is mature and is due for the normal consolidation, pullback, arrest, giveback that is associated with any very steep uncorrected advance.

PRATT: To be sure, Worth does not think stocks are in danger of another collapse, rather a prolonged period of apathy. Others, however, say the Vix could continue to move lower in the coming weeks. After all, a reading below 20 was the norm for much of the decade. It would also mean that investors rediscovered their appetite for stocks. Still others, like Standard & Poor's Alec Young, doubt the Vix can crystal ball the stock market's future at all.

ALEC YOUNG, MARKET STRATEGIST, STANDARD & POOR'S: The Vix is a coincident indicator. So, the market is going up and therefore the Vix is declining. I don't know that it's that predictive. So, just because the Vix is going down, the Vix is going down because the market is going up. But, as to the question of whether the market will keep going up, I don't think it's as simple looking at the Vix. If it were that easy, we'd all be millionaires.

PRATT: Some experts also question the usefulness of the Vix because of its relatively young age. It only began trading in the 1990s, so is somewhat untested in its ability to deliver a message about the market. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York