Watch the VIX

The world is on edge as the Japanese nuclear crisis continues to escalate.  As a contrarian investor, the best insight into the level of fear in the markets is measured by the VIX.  In simple terms, the VIX measures the premium of put options on the S&P 500.  If the VIX is low, it means that the fear premium is low, and vice versa.  A rising VIX correlates well with lower stock prices.  Today, the VIX shot up 20.89% to close at 29.40.  It is up more than 50% in the last week.  This is a huge move and reflects the fear and uncertainty that currently persist.  The S&P 500 closed the day at 1256.88, down 1.95%.   I am monitoring this situation closely.  I am extremely bearish on almost all risk assets through the intermediate term (2+ years), but I know that the most severe bear markets are always accompanied by the most powerful short term rebounds.  This has the effect of knocking out the late comers and forcing them to cover their short positions just before the next big move down.  I am happy holding my short positions now, but as a contrarian investor, I may have to reconsider if the VIX continues to rise to the 40 level and above.