Securities Research Services

Friday, July 27, 2007

Capitulation, or just a Breather?

Yesterday the VIX, the indicator which measures investor fear, spiked up to levels not seen since May of 2006. The spike in that case led to a bounce, but it was more of the dead cat variety.

Selling is as brutal as we have seen. The breadth levels on the NYSE were as low as 92% negative yesterday, indicating that 92% of all stocks on the exchange were down on the day. Breadth levels like this typically form at capitulation.

That said, it is still not clear whether the smart move is to buy aggressively. There was a bit of buying at the close, so we may indeed be on the verge of a nice tradable bounce. We need to see what type of mood the market is in today to be sure though.

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