Volatility Tracker for the week of February 8, 2010 (.pdf)

Except for a brief interlude in mid-November, equity index options haven’t been this fairly valued in about a year, meaning that realized volatility has more closely matched the volatility implied by options prices. [5,6]

In previous articles I have been discussing the deteriorating internal strength, breadth, volume, and momentum of the stock market. In the last few months liquidity driven stock prices have ticked higher against a fundamental backdrop of severe non-traditional credit headwinds, furious insider selling, a higher future tax rate, increasing global trade barriers, an unemployed debt ridden consumer, and S&P valuations near all time highs.

After the 700 point slide in the Dow, many were wondering if this was just a correction, or the start of something else, I lean towards the latter. One of the things I was looking for to confirm this view was a pick up in terms of negative breadth and volume. Much like the deteriorating internals was a clue to the inevitable end of the uptrend, the down trend was confirmed today (February 4th) with an increase in internal selling strength. During the relatively weak bounce upside breadth statistics were extremely weak, today however, both NYSE Decliners/Advancers and Down/Up Volume ratios both exploded higher, not only easily surpassing the downside breadth recorded in the January sell off, but registering the broadest sell off since March ’09.

Last year saw more than 100 new products launched, ranging from plain vanilla equity and bond funds to ETFs offering exposure to exotic new investment strategies and asset classes previously available only to a limited slice of the investing community.

The innovation that has made ETFs a popular alternative to mutual funds seems ready to continue through 2010. Based on discussions with industry executives and others covering the industry, it seems like a safe bet that 2010 will shatter existing records for new ETF launches.