Re: Let's talk stocks & IPO
Fear's up, but must grow before Wall St hits bottom
By Edward Krudy and Doris Frankel
NEW YORK/CHICAGO,_June 15 (Reuters) - Signs of rising fear in the U.S. stock market suggest a selling climax could be looming, but the rout in equities probably will get uglier before the market reaches a bottom.
The CBOE Volatility Index or VIX, Wall Street's barometer of investors' anxiety, jumped to its highest level in three months on Wednesday. That was the biggest move in the VIX in two weeks after the index largely shrugged off a 7.2 percent fall in the S&P 500 since the end of April.
In addition, sentiment among advisors and small investors has started to turn down sharply after a prolonged period of bullishness, another sign that selling could be peaking.
"Today fear is finally starting to emerge from its slumber as concerns over the European debt crisis continue to dominate the market," said Ryan Detrick, senior technical analyst at Ohio-based Schaeffer's Investment Research.
Analysts look for a sharp increase in negative sentiment as a sign that selling pressure has run its course and markets are poised to rally. During the recent drop, they have continually pointed to the subdued level of the VIX as a sign that investors may be too complacent.
The catalyst for Wednesday's sharp spike in the VIX was a fall of almost 2 percent in the Standard & Poor's 500 Index, fueled by more signs of weakness in the U.S. economy and mounting concerns over Europe's debt crisis.
Worth noting: The VIX, which rose 16.8 percent to end Wednesday's session at 21.32, is still relatively low. When the stock market sold off in March, the VIX rose to over 30.
"You have to get to the point when people are thinking, 'I don't want to have anything to do with stocks' and we're not quite there yet," said Ari Wald, an equity strategist at Brown Brothers Harriman in New York.
Wald expects the VIX to rise to at least 35.
The VIX is a 30-day risk forecast of stock market volatility conveyed by S&P 500 option prices. The VIX typically moves inversely to the benchmark S&P 500 index.
BEARS RUSH TO BUY PUTS
Many investors are focused on the S&P 500's March low for this year at around 1,250, a level that roughly coincides with the index's 200-day moving average. They believe the S&P 500 will pull back to at least that level.
Wald is looking for a retreat to 1,230 when several important factors coincide, including the 61.8 percent retracement of the 2007-2009 bear market, a closely watched Fibonacci level.
In the options market, there were signs that investors were seeking insurance against further declines.
"There has definitely been more put buying across the board as investors position for more losses or hedge their long portfolios," Detrick said.
The put-to-call ratio of total listed U.S. option volume stood at 1.14, up from its recent 22-day moving average of 0.99, according to Trade Alert data.
The latest survey from Investors Intelligence, a widely followed sentiment indicator that tracks research by investment advisors, shows that bears increased to 26 percent from 22.6 percent, narrowing the bull/bear spread -- the number of bulls over bears -- to 11 percent.
That corresponds to a separate survey by the American Association of Individual Investors that shows investors with a bearish outlook for the next six months jumped to nearly 50 percent -- up almost 14 points from the previous week.
If the drumbeat of disappointing economic data continues, then there could be a lot of room for stocks to fall further.
"It is likely going to be the case that this decline won't end until the complacency is wiped out, and panic sets in," said Larry McMillan, president of options research firm McMillan Analysis Corp, in a report. (