Market Volatility is alive and well right now.  I have found yet another example of what I mention on a daily basis:  The market is emotional.  Let’s look at today’s example.  Go to http://finance.google.com/finance and take a look at the chart for the Dow Jones Industrial Average today.  (We will do an entry on what the Dow Jones is but for now just think of it as the most widely known indicator of market health)  If you look at this chart, you will see that the Dow had a 3.5% swing today.  It went from down 200 points to up 100 to nearly even.  That sizable swing worries investors.  It’s also important to note that the market is down nearly 10% as of late.  Here’s where the emotion comes in.  Investors got excited and bought investments to the point where the market moved up so fast that it had no other place to go but down and that’s where the 10% drop came from.  Now, the market is what we call oversold (this is measured by something called the S&P Oscillator) which means that it is probably sitting at levels where it will start heading back up.  In fact, yesterday, I made some ETF purchases because I believe the market will start going up. 

Market Volatility is analyzed by people much more informed than we need to be but it tells us something important:  It’s probably not a market that the new or average investor wants to invest their money in to.  What causes this?  Sometimes the answer is easy, sometimes it isn’t.  In this case, it seems to be easy to see.  First, as we talked about yesterday, Steve Jobs’ announcement rocked the market this morning.  Then, Bank of America announced that they didn’t have the assets to absorb Merill Lynch as promised.  The government has had to step in to help Bank of America.  On the positive side, some of the weekly and quarterly numbers were announced today and they didn’t look quite as bad.  It was a day of good and bad news for the markets.

Back to Market Volatility.  Why might you be interested in this?  First, market volatility is never an indication of good things.  There is a measure of market volatility called the VIX.  Most of us who invest in stocks have the VIX on our watch sheet.  The VIX, or CBOE Volatility Index measure how worried investors are.  In a good economy, it is around $10.  It has been as high as $81 in October 2008 and right now it is sitting at an alarming level of $51. (We want it to be low) When the VIX is high, your money is at risk and you want to be careful.

What does a US Airways commercial airliner have to do with Elementary-Finance.com?  National and international events move the markets in ways that cannot be predicted but that’s not why I mention it.  As I write this, the news agencies are using words like, “miracle,” and “hero.”  I think the pilot who landed that plane is truly a hero and that’s the story but from a financial standpoint, any good news from the media is great for markets. (Again, because investors are emotional)  Tomorrow will be an interesting day for elementary-finance.