Volatility Approaches Crisis Levels

Investor fears – along with volatility – are on the rise...
THERE ARE few sure bets in the financial markets, writes Brian Hunt for Steve Sjuggerud's Daily Wealth.

Few "this is the case, and it always will be" statements that we're comfortable making. The market is just too messy for those kinds of words. A particular stock investment idea will work for years, and then it won't. A commodity trading strategy will work for years, and then it won't.

But one "this is the case, and always will be" statement we'll stick by is this: "Calm periods of rosy headlines and softly rising prices will always be interrupted by periods of wrenching volatility...and vice versa." That's just the way the world works. Scientific types call this idea "reversion to the mean."
For a picture of this "always the case, always will be" phenomenon at work, take a look at the past six years of the Volatility Index (the "VIX"), the most popular gauge of market volatility and investor fear.

Note how the VIX spiked in 2007 (mortgage market fears), 2008 (financial meltdown), and 2010 (Flash Crash). Now note how the VIX eased lower after those scares. Right now, we've spiked into the 40 range. Fear is at high tide.