Investors questioning if the current postelection rally is on the verge of becoming a bubble should keep an eye on one measure of volatility, according to DataTrek Research. The CBOE Volatility Index , known on Wall Street as the VIX, helps traders track when a market rally is actually unhealthy, said DataTrek co-founder Nicholas Colas.
But he said investors should take pause if the VIX surpasses 20 and stocks continue climbing. To put it succinctly: "Rallies built on an elevated VIX signal a bubble," he wrote. That's a lesson market participants learned, during the dot-com bubble of the mid- to late-1990s, he said. In the current bull market, dating back to the fourth quarter of 2022, however, the VIX has been largely "well behaved," Colas argued.
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