The CBOE volatility index (VIX), widely considered the best gauge of fear in the market, spiked more than 20 percent on Tuesday to top 25, its highest level in almost two months. What does the level imply for the markets—and what should investors expect going forward? Mark Arbeter, chief technical strategist at Standard & Poor’s, shared his insights.
“The VIX is going to stay elevated,” Arbeter told CNBC.
“The first phase of the bull market is complete—the price structure since March 2009 has been very similar to the bull market off the 2003 lows as well as 1982 lows.”
From here, Arbeter said he expects the markets to correct anywhere from 10 to 15 percent over the next 6 to 10 months.
“Typically, the first major correction in a bull market lasts fairly long…so I think we’re in for a very choppy sideways to down market into the fall months, and possibly into the first quarter of 2011," he explained, adding, "and I see major damage more so over in Europe and Asia than in the U.S.”
“At worst, you might give 30 to 38 percent of this rally since March—possibly 50 percent,” he continued. “Even at 50 percent, that will take the S&P back to about 950, but I think that will take time and I don’t think there’s any way we’ll get back to the lows.”
However, the bull market will resume after the correction, he said.
“The breadth on the NYSE has been so strong and typically the breadth peaks well before the bull market peaks,” he said. “We’ve seen broad sector participation and that suggests that this is just a pause in the bull market and the bull market has further to go.”
An Opposing View:
- Watch Arbeter's Previous Appearance on CNBC (Mar. 9, 2010)
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No immediate information was available for Arbeter or his firm.