Monday, February 06, 2006

Dull Day

Not much to report for Monday.  The market couldn’t manage to stay awake long enough to trade today.  This means that the market will likely try to bounce on Tuesday morning even though there may not be much staying power.  We still contend that the market is about ready to give us lower prices and that has not changed today.  There is some uncertainty out there but mostly it’s called complacency.

We don’t normally discuss measurements to complacency but one such measure is the volatility index which examines price levels of options.  These volatility measures have contracted over the past three or four years.  In the late 90’s and early 2000’s the volatility index moved between 20 and 40 after having been near 10 in the mid 90’s.  Over the past three years this number has again fallen back into the low double digit range.  

As you might have guessed, on options expiration Friday, January 20th, that number jumped considerably from about 12 to about 14.5.  Since then it has fallen back, in the rally after that 200 point decline and now has risen again to just over 13 today.  That is the nature of index.  It gives you information of the current mood of the market.  

We expect that number to increase back to the 20 range this year sometime, forced there by plenty of downward pressure on the market.  The market certainly is not prepared for a major drop right now and a 13 in the volatility index represents this complacency.  We will monitor this number as the market declines to see if that complacency can be changed to fear.  Complacency is the first cousin to greed, the lazy cousin but a cousin.  The fat cats sit back and say they will wait for the next big up move before they sell.  That big up move comes and then they say I can wait longer.  Then the market goes against them and they say, I should have done this or that.

We want those cousins to sell their stocks to us when prices go down but for now, Be careful out there.

Dow Industrials:  10,798.27  +4.65
RYVNX:  19.14
RYAIX:  22.24
TLT:  91.03
BEGBX:  13.06

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