The volatility index could go lower, indicating the market hasn't hit bottom.
NEW YORK (AP) -- Although war fears drove Wall Street shares to four-month lows this past week, some analysts say investors may not be worried enough. That's because stock volatility, one measure of determining market bottoms, hasn't been extremely high, and that forebodes more declines in the weeks ahead.
The three main indexes posted moderate declines for much of the week before unexpectedly surging higher on low volume Friday as investors made short-term bets on stocks amid concerns of war and terrorism.
But a market measure of investor anxiety, the Chicago Board Options Exchange's volatility index, or VIX, has been trading mostly in the 30s. Though considered high, the level is still below the 50s reached after the main indexes hit their multiyear lows in October.
Analysts say that could mean steeper losses are needed before investors can see a true market recovery, even though the indexes are edging closer to their Oct. 9 lows. The Dow is now 8.5 percent above that low, while the Nasdaq is up 17.6 percent and S & amp;P 500 is up 7.5 percent.
"There's quite a bit of anxiety, but it's not at a panic level," said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla.
"We need to see more of a sell-off," he said. "Will we test the lows? Will we go through? I don't know. ... But as far as levels associated with a major market bottom similar to July and October, we need something up in the 50s."
The three main gauges fell moderately for much of the week after the release of an audiotape purportedly of Osama bin Laden expressing solidarity with Iraq. Many Americans rushed to buy duct tape and gas masks and stocked up on canned goods for fear of a chemical attack on U.S. soil.
Still, selling on Wall Street wasn't particularly heavy, and buying even emerged by week's end, after the volatility index hit an intraday high Thursday of 40.68. Friday's late-day surge helped the major indexes snap a four-week losing streak.
"Investors are not as worried as in October. Part of that is because the market hasn't fallen that rapidly at once. It's fallen steadily, which tends to provoke less panic. Some people believe that means we haven't bottomed yet," said Sam Burns, an analyst for Ned Davis Research in Venice, Fla.
Predicts more drops
Ralph Acampora, director of technical research at Prudential Securities, agreed. He expects more declines, and perhaps a new multiyear low for the main gauges, unless there's an unexpected peaceful resolution with Iraq.
"Normally at market peaks, investor psychology is very serene," he said. When the market bottoms, "they get very nervous," he added, so the current lack of sharp market swings may be a troubling sign.
Often it's when market sees what's known as "capitulation," a fear-driven dumping of shares by the last of investor holdouts, that stocks see long-term growth again, Acampora said.
Analysts stress that the volatility index is just one technical measure of a market's direction.