A nice intra-day rebound last Friday helped pare morning losses with the STI Index down a modest 12 odd points last Friday compared to a more than 30 point decline on Friday morning.   The uncertainty and volatility of stock markets will continue but as the uncertainty is being generated by fiscal policy and government decisions on when and how much to raise interest rates, we know that Governments and Central Banks have some room to move viz the eventual withdrawal of these measures.   Mutual fund managers missed the rally in 2009 and many of them had to “BUY” performance and were thus less willing to take profit despite handsome gains they made in 2009.  As we start the new year, they have the flexibility to take some profit and this has resulted in the long overdue correction that we thought we would see in the middle and toward the end of Q3-2009.   Originally, i was of the view that the uncertainty was being taken in its stride by investors.  The VIX index rose sharply but then started to ease despite the sharp falls in the market.  I noticed that over the last three days, the VIX has started to rise again and although still modest at about 24 – we should keep an eye on it to see if continues to rise.  A breach above 30 could signal a more meaningful correction (see chart on VIX below).

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