The selling from the last seven trading days has caused the CBOE Volatility Index (VIX), also known as the "Fear Gauge," to jump more than 36 percent and has allowed the indicator to approach the 22.50 level.
During the past nine months, the VIX has been range bound between 15 and 22.50 for the most part.
There was an exception of a spike up to 30 on March 16. This was in the immediate aftermath of the earthquake and tsunami in Japan and the nuclear reactor concerns that followed.
The reason this could be a good sign is that the market has rallied for a few months each time the VIX has moved above the 22.50 level. The VIX moved above 22.50 on Nov. 29, March 15 and again on June 16.
The market isn’t happy about the lack of a deal in Washington regarding a debt deal and that is being reflected by the VIX.
I feel confident that a deal will be reached and a debt default will be averted. When this happens, the market will breathe a sigh of relief and a rally is likely.
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