Watching the Vix: Room to Go Higher

When it comes to finding a bottom, the stock market right now is behaving like someone slowly peeling off a Band-Aid over a wound, rather than just ripping it off all at once.

Kathy Willens

For investors, that means a long, painful downfall that probably will lead to a long, patience-testing recovery.

That's because one of the market's main measures of fear, the Chicago Board Options Exchange's Volatility Index , is still considerably below levels indicating panic-selling, which in turn would indicate a bottom. Despite all the frenzy over the fall of the financial sector, the Vix is maintaining relatively tame levels below 30, often considered a benchmark for fear.

"It's not a massive run for the exits," said Michael D. Cohn, owner of Atlantis Asset Management. "It's just one person after another getting fed up with this market."

While the Vix is nearing the 35.60 level it hit during the March lows before the rally, there's been no sign that a high-volatility move in the market is coming. The Vix made a brief foray above 30 Tuesday when the Dow wavered below 11,000 for the first time in two years, but then slid as stocks rebounded through the day.

Cohn, an avid Vix-watcher, said he's not expecting any major moves and believes there may not be one before some spate of good news sends the markets higher.

"This is one of the hardest markets to be an investor in. You never know when the slide stops," he said. "It was so easy back in March and January. It sold off quickly, the Vix went to 35 and you got the all-clear. This is basically the third shoe to drop and it's just a slow bleeding."

In the meantime, traders, not investors, are controlling the market.

"A lot of people realize that this market is being taken down by same guys that took it up last July -- buying works so let's just keep doing it until it stops working," Cohn said. "It's basically ruled by the traders."

He sees bargains out on the market now, especially in banking, but recognizes the high appetite for danger that investing will take.

"I think it's already gone too far in that there are a lot of good banks and good financial companies that are trading at just silly levels," Cohn said. "If you've got a long-term horizon you should be stepping up and buying. But it's very hard because you step up and buy something and it's down 10 percent the next day."

Art Cashin, director of floor operations at UBS Financial, said on CNBC that he's hoping to see a washout day for the market where the Dow falls 400 or 500 points, but traders so far have resisted.

"I still hope to see a real shock," Cashin said. "For all the visions of the end of the world that we see, stocks are down but they really haven't capitulated into great anxiety."