During the past week, the battle on Capitol Hill has taken a toll on stock markets around the world. The uncertainty of whether or not a deal would be put together in time to meet the deadline caused investors to head for the exits.
At the time that I am writing this, we are waiting for a vote in both houses of Congress. The President, Speaker of the House Boehner and Senate Majority Leader Reid seem to think the deal is done and that the vote is a formality.
While all of the political wrangling rattled the markets, the CBOE Volatility Index (VIX) jumped sharply last week. Since closing at 17.52 on July 22, the VIX, also known as “The Fear Index,” has jumped above the 25 level in six trading sessions. That is a jump of 42 percent.
It is said that the market likes to climb a wall of worry and if that is the case, the VIX is indicating that a rally may be forthcoming.
The only two times the VIX has been above 25 in the last year was last August, right before the four-month rally that closed out 2010 and again in mid-June right before the sharp rally at the end of June.
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