By Heather Long
October 15, 2014
It’s another “look out below” day in the stock market.
The Dow plunged as much as 460 points Wednesday afternoon before pulling back a bit, although a 370 point loss isn’t anything to cheer. There wasn’t an obvious trigger. Ebola and Europe’s sour economy are clearly worrying. Earnings have been so-so, and retail sales data out this morning was disappointing.
October has been a brutal month, erasing most of the 2014 stock market gains. The Dow is negative for the year, and CNNMoney’s Fear & Greed Index is showing extreme fear.
Most investors are better off not obsessing about the day to day market moves.
But if you’re keeping an eye on the numbers, here are three critical stats to watch. There is no “magic number” that triggers a sell-off, but these indicators would be big red flags.
1. We’re near a correction, but not there yet
Only a month ago, the S&P 500 index closed at an all-time high of 2,011. At its worst point Wednesday morning, the index was down around 9.5% since then. That’s rough, but it’s not quite the 10% drop that would constitute a true correction, let alone the 20% drop that would signal a bear market.
Keep an eye on this number: 1,810. If the S&P 500 slips below that, we’re in a correction. As of Wednesday afternoon, the S&P is hovering around 1,830.
(For those who like numbers, at the nadir of the financial crisis in March 2009, the S&P 500 closed below 700).
2. Volatility is back — and it’s getting to gale force wind levels.
Most days the stock market moves a little bit higher or lower. For instance, the S&P 500 moved less than 0.2% on Tuesday. But since the end of October, the stock market has had numerous “wild swings” where it shifts more than 1% (or even more than 2% in some cases).
That’s referred to as volatility. The VIX Index is the main measure of volatility. It has spiked about 90% in the past month — a huge jump. As of Tuesday afternoon, the VIX was at about 25. That’s a lot higher than the 12 to 13 it was at a month ago.
The unofficial alarm bell is the 30 mark, which the VIX crossed Wednesday afternoon.