Though the VIX touched below 20 during Wednesday morning, afternoon jitters and an investor-focused statement from President Bush led volatility higher into close.  Between close and Thursday's open, data and sentiment swung in favor of the bears, with this trend continuing well into today's trading.

    Treasuries continue to strengthen, as even gold's 2% burst rally today has not matched the persistent strength seen in the 5- and 10-year bills.  The S&P likewise remains weak relative to fixed income today.

    Again though, the Russell continues to make up losses against the S&P.  This is somewhat perplexing, as a tightening credit market should affect smaller firms with less collateral and cash much more than large firms that can sustain growth out of pocket.  Some of the correction is likely due to the S&P's heavy financial weighting, as well as the already-overextended difference between the two over the last month.

    The VIX has broken below 20 just before 10:30 in morning trading on what appears to be convincing volume.  Though China and yesterday's FOMC statement have been taking their toll on treasuries, the volatility correction seems to be most apparent in the correction going on between the Russell 2000 and the S&P 500.  Note how the Russell's differential strength versus the S&P skyrocketed, forecasting the VIX drop.  The market seems to accept now that the FOMC statement did not change its stance on the relative securities of large and small caps over the last month, and is thus correcting accordingly.  As of 11 o'clock, the Russell ETF is trading at over twice the return of the S&P 500 ETF, with IWM up over 3% and SPY up near 1.25%.