VIX Surges to New High Not Seen Since 1998

Sep 29, 2008: 1:15 PM CST

What a day – as of 2:05 EST, the US House of Representatives has rejected the Economic “Bail-out” Bill and the Dow Jones plunged as far as almost 700 points down on the day (currently down 525 but rapidly changing) while the Volatility Index (VIX – the “Fear Index”) surged to 10-year highs – outpacing upper readings even during the early 2000 bear market.

We’ll need to focus closely on this, and analyze after the close, but as of now, let’s see this development on the Monthly and Weekly charts:

VIX Monthly Index:

The VIX peaked at just under 45 in 2002 in the throes of the Recession and Bear Market, but actually the higher level was reached just above this level during the 1998 ‘Asian Contagion’ etc crisis and now price (intraday) is scraping against those levels.

In 1998, the VIX reached 45.74 and today (as of 2:00 EST) the level reached an intraday high of 45.61 – dangerously close to exceeding that multi-year high level.

VIX Weekly Index:

We’ve cleanly severed the 2008 highs and the downtrend in the highs of the VIX (even as the market made lower lows in price).

On the bright side, now might be a good time for professionals to sell puts and calls, especially in spread or otherwise positions.  Newer traders may need to step aside in this wildly swinging, highly volatile environment to protect capital.

Crude Oil has fallen more than 8% and the US Stock Market are down more than 4%.  Yields on t-bills/notes are falling as note/bond prices are rising.

Guard your capital and stay tuned to the rapidly changing conditions as they unfold – this is a great time to build experience so long as you’re not eroding your capital in this environment.

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