Options fear gauge drops below 20 as stocks rally

By Doris Frankel

CHICAGO, April 18 (Reuters) - The Chicago Board Options Exchange Volatility Index, or VIX .VIX, on Friday moved below a reading of 20 for the first time this year as U.S. stocks soared on encouraging results from the financial and technology sectors.

Often referred to as Wall Street's fear gauge, the indicator fell 4.42 percent to 19.47 near midday after hitting an intraday low of 19.21, a level not seen since late December 2007.

The VIX is down 21 percent from Monday's high of 24.35, a sign that bearish sentiment has eased.

With all the fear and concern out there regarding the problems in the credit and housing markets, the drop in the VIX is showing that there is some calm out there, said Ryan Detrick, analyst at options research firm Schaeffer's Investment Research in Cincinnati, Ohio.

Detrick notes the VIX has closed beneath the 40-week moving average, currently at 23.77, for three consecutive weeks, suggesting that the upward trend could be ending.

"Historically, we like to see a downward trending VIX, which would be bullish for stocks," Detrick said.

The VIX, which measures near term anticipated stock market volatility conveyed by Standard & Poor's 500 index .SPX option prices, generally runs opposite to the S&P index.

The indicator tends to fall when investors are more complacent about current stock levels and as a result, they may feel less inclined to turn to options to manage market risk.