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Stocks may face wild swings and earnings blitz

Stocks may face wild swings and earnings blitz
By Angela Moon

NEW YORK | Sat Oct 23, 2010 7:39am EDT

NEW YORK (Reuters) – U.S. stocks could see big swings to the downside next week on any remotely “bad” news since volatility indexes are at levels considered too low.

Investors also will face a blizzard of earnings, which many analysts believe will continue to support the rally that began early this month. But any disappointments in either earnings or outlooks could, of course, trigger a sharp sell-off.

What’s more, the market is likely to continue to garner support from investors’ hopes that the Federal Reserve will take more steps to stimulate the economy, in what’s known as “quantitative easing” or “QE2.” The Fed is expected to unveil its initial commitment under QE2 at its November 2-3 meeting.

The Chicago Board of Options Exchange (CBOE) Volatility Index, or VIX .VIX, a gauge widely used to measure investors’ anxiety levels, fell 2.54 percent on Friday to close at 18.78, its lowest level since April. The VIX, which rose to near 50 in May, has been around or under 20 for the past two weeks.

Options traders note that there is a clear sign of extreme complacency in the VIX and that it is making the market more vulnerable than before.
“The ‘market volatility’ index will see a lot more volatility (next week) since it is at such low levels now,” said Steve Claussen, chief investment strategist at online brokerage OptionHouse.com

http://www.reuters.com/article/idUSTRE69L5BE20101023

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