Chief Editor

Few would disagree that the US markets are a precursor for most world markets and Australia is no different. A much watched indicator in the US is the VIX - the Chicago Board Options Exchange Volatility Index. It measures the speed of price movement on the S&P 100 index (OEX) and is calculated by taking a weighted average of the implied volatility from eight calls and puts on the S&P 100 index.

Even though the VIX is directly derived from options it is used as a guide for the physical market.

The VIX has just come off a 10 month low. It is a sentiment index and is also seen by some as an indicator of level of interest in the market. At its current levels it indicates there is not a lot of interest in the markets.

This is also borne out in our own Australian market – where the OBV has been very low. But as I have previously mentioned this can be misleading as individual sectors and stocks can be showing contrary signs and this has been very true over the last few weeks. Behind a not so exciting market there have been some very good movers. Pronounced sector divergence is likely to be the norm for much of 2003.

Taking a contrarian VIX view, the bearishness was at such a low level unless there were compelling reasons for it to slide further, it could go only one way – into reversal.

We are more likely to see an increased interest in the market form here on. Be careful about jumping in with gay abandon – the Australian market had a very strong finish last week and one would expect some level of pull back this week. The pullbacks are the ideal “buy in” time for stocks that show some signs of developing long upward trends.

Again thank you for your constant flow of comments and ideas. According to your feedback one of the appealing features of the newsletter is its succinct style. We thus plan to keep coverage to 3-4 articles each week.

It is not always easy for every writer to contribute each week as they have busy schedules. Aaron Lynch has been travelling all week covering a national schedule of seminars and thus is not part of this week’s newsletter, but he will be back with us next week.

Tom Scollon
Chief Editor