Saturday, May 8, 2010

Talking fools

In “Fooled by Randomness” Nassim Taleb says that he likes to leave the TV tuned to a market news station but with the volume muted.  That way he can by amused by the silly head bobs and gesticulations without having his brain bothered by the foolishness that comes out of the talking heads’ mouths. 

That certainly was the case at the end of this last week after Thursday’s market gyrations.  But anybody with half a brain could have easily seen the unease approaching long before Thursday afternoon. 

The CBOE VXO is a measure of volatility in the market that some traders have named the “fear index”.  Typically as it rises the market falls.  Times of extreme uncertainty and fear are typically a buying opportunity and similarly times of increasing uncertainty are typically selling opportunities.  Since about the middle of April the VXO has been steadily increasing with a predictable outcome on Thursday.  Despite what the bobbing heads may be saying.  I don’t actually mute them but I am slowly learning to ignore them.

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