This is Just the Beginning

Don't say we didn't warn you. Last week was a real roller coaster for the stock markets worldwide. In the US the major indexes managed to rebound after having plunged but on Friday we saw a weak close that points to further weakness to come. And the real story of the last two weeks or so is not the tragic events taking place in Europe, but an "awakening" of volatility or "fear" as we pointed out on our April 4th post.

So where do we stand? Well, we don't yet see sign of volatility abating, in fact on Friday might have initiated a third wave up which could make it retest the resistance levels of around 40 for any of the major volatility indexes, right now they have readings of about 30. But that could be just the beginning if we take a look at a 4 year historical chart of the VXO which appears below and which was the inspiration for our April post. If indeed volatility has bottomed out, we could be at the start of a bear market which could take the markets seriously low. And the justification for the next wave down might be that Spain is in trouble and it could be the next to go bust, bringing another wave of fear to the markets and taking the Euro down with it to the $1.15 mark which could occur before the summer starts. Regarding the stock market, how low could it go?... Only volatility will tell.