Volatility could be good

Sharp market swings might signal
Wall Street’s recovery

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By Hope Yen
Associated Press

NEW YORK >> As unpredictable as Wall Street appears these days, there might be some hope behind its whipsaw price moves. Analysts say the volatility might be what's needed for a slow, truly meaningful switch from bearish to bullish sentiment.

The Dow Jones industrials surged 1,000 points this past week after hitting five-year lows. Much of the gain came on a four-day, 969-point climb -- the biggest four-day rally since 1933 -- before the market lurched up and the down the remainder of the week.

Meanwhile, the Chicago Board Options Exchange's Volatility Index, has been trading at very high levels of more than 40 in recent weeks, and rose to 50.48 on Oct. 10, the start of the four-day rally. The index measures the market's estimate of future volatility.

Analysts say the fluctuations may be a good sign, indicating a battle between skittish bears willing to sell at the slightest indication of bad news versus a growing number of more confident bulls ready to jump in at beaten-down prices.

"Around market turning points, a lot of times sentiment is extreme. So you get big selloffs and subsequent big rallies afterward," said Sam Burns, research analyst at Ned Davis Research. "The fact that we are seeing high volatility now would be consistent with a market bottom."

The market's three main gauges posted their second straight weekly advance after snapping a six-week decline. Analysts said investors were becoming more confident amid a wave of better-than-expected earnings news, which began in full force this past week.

But investors say their faith in the stock market is still at its lowest in years, and two-thirds remain wary about making substantial investments, according to a recent AP poll and interviews around the country.

"We definitely had a bottom last week," Burns said. "But how long it lasts is another question. It could be a two-month rally like it was before. Or it could be a rally, like in the fourth quarter last year, of three to four months."

"I wish we knew," he said.

For the week, the Dow climbed 472.11, or 6 percent, after rising 47.36 yesterday. The Dow closed the week at 8,322.40.

The Nasdaq had a weekly gain of 77.39, or 6.4 percent. Yesterday, the Nasdaq advanced 15.57 to 1,287.86.

For the week, the S&P index rose 49.07, or 5.9 percent. Yesterday, the S&P advanced 5.19 to 884.39.

The Russell 2000 index had a weekly gain of 18.44, or 5.4 percent, after rising 0.80 yesterday. The Russell ended the week at 363.37.

The Wilshire 5000 Total Market Index -- an index that measures more than 5,700 U.S.-based companies -- ended the week at $8.32 trillion, up $450.75 billion from the previous week. A year ago, the index was $9.89 trillion.