Stocks fell about 3% last week but did manage to finish
up from lows reached Wednesday. Market volatility shows little sign of abating,
but trading was less panicky than such a big drop would have it. Is it possible
all the volatility of the past six months has numbed investor sensibility to
big swings?

The Dow Jones Industrial Average fell nearly 2.6%, or
over 300 points, to close at 11,866.39.  The tech-heavy Nasdaq Composite
finished at 2555.33, losing 3.5%. Trading volumes were modest, apart from late
Friday, when many derivatives contracts, like options and futures, expired.

For investors who haven’t noticed, in 2011 stocks of
domestic-oriented companies have outperformed companies with lots of foreign
sales. Despite a week in which both Europe and the U.S. fell about 3%, U.S.
stocks remain by far the best-acting equity market this year.

There are indications, avers Jack Ablin, chief
investment officer at Harris Private Bank, that a decoupling will continue. He
points to a recent divergence between euro currency moves and the Chicago Board
Options exchange Volatility index, or the VIX, which is a measure of
volatility. In the past two weeks, drops in the euro have not been accompanied
by a higher VIX reading.

When the euro broke below $1.30 last week, a key
psychological level, the VIX didn’t move much, he says. Previously, a drop like
that would have argued for much more volatility and a much higher VIX level, he
adds.

Instead the VIX closed around 24.29, edging closer to
those halcyon levels seen before the U.S. and Europe debt problems erupted last
August, sending markets into tailspin and the VIX into the high 40s
(Source:  Barrons Online).