MARKET BUZZ
Wave a Pennant for the Markets
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We know what 2008 was like in the stock market: bad, and then some.
For the year, the Dow Jones industrial average was down 34 percent, its worst year since 1931.
Turns out, 1932 was a bad year on Wall Street, too.
What might 2009 bring?
As we've learned over the past year, your guess is as good as anyone's. Would you have guessed that General Motors would have lost 87 percent of its value in 2008?
But if you're looking for indicators for 2009, a pennant may point the way.
One gauge of market performance is volatility -- how much the markets fluctuate from day to day. You'll remember, as will your 401(k), the Dow's several-hundred-point swings in October.
On Oct. 13, the Dow rocketed up 936 points. Two days later, it plunged 733 points.
Imagine this 1,669-point swing as the thick end of a pennant, like the pennant of your favorite sports team.
By the end of the year, however, those daily and weekly swings had subsided substantially. A big day on the Dow is now a 100-point move. Most days it's much less. So imagine those swings as the middle part of a pennant as it gets thinner, heading toward its pointed tip. Analysts say the markets over the past month have taken on the pennant shape.
A measure of such swings among shares on the Standard & Poor's 500-stock index is the VIX, the ticker symbol for the Chicago Board Options Exchange Volatility Index. A higher VIX number means greater volatility.
Back in October, the VIX hit 80, its highest number since it was introduced in 1993.
But at the close of 2008 trading on Wednesday, the VIX was 40 and falling, down from 55 a month ago.
Now, this does not necessarily mean the Dow or S&P are heading upward. Indeed, even though the Dow closed up 108 points on Wednesday, it is still down nearly 5,400 points from its all-time high of 14,164 in early October 2007.
And even though only the boldest -- or most foolhardy -- are ready to call a bottom, it appears the markets are settling. And that may be worth waving a pennant.
-- Frank Ahrens
