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Two Ways to Play: Market Starting to Stabilize?


Strengthen your portfolio in good times and bad.


Editors Note: Terry Woo is out sipping champange this afternoon. Buzz & Banter editor Matt Theal is filling his considerable shoes.

The Chicago Board Options Exchange Volatility Index, or VIX, is also known as the "Fear Gauge" on Wall Street. It measures the cost of using options as insurance against a decline in the S&P 500. The VIX is basically a measure of expected volatility over the next 30 days.

According to a Bloomberg, the VIX had an average level of 16.13 dating back 5 years. Today closed below 40 for the first time since October 2. Over the past 2 months, the VIX has fallen 51% from an all-time closing high of 80.86 set back in October.

According to a VIX options market maker, the VIX above 40 is a sign of market panic. Now that the VIX has closed below 40, it's a sign that the market is starting to stabilize. As fear comes out, money may come in.

From the Bull Pen: A January rally is on the radar of many here. Instead of trying to pick individual stocks, those bullish could consider the Double S&P 500 ETF (SSO) with a stop at $23.50.

Bear Cave: Treasuries could get beat up as we head into 2009. One way to play could be the UltraShort Lehman 20 Treasury (TBT). Consider buying it here and set a stop loss below $35.

Happy New Year, Minyans!

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No positions in stocks mentioned.

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