Friday, December 19, 2008
VIX Decline Showing Market Complacency; Dec. 19, 2008
Attached is a daily chart of the VIX. The VIX is essentially a fear indiator. The higher the VIX, the more option put buying and therefore more fear. The lower the VIX, the less fear in the market. VIX lows and low fear can accompany market tops because people have become overly optimistic and complacent. Granted the VIX is much higher than it's "normal range in the 15-20 area, but it has come down significant this week as you can see in the chart. This doesn't tell us that a turn down is coming now, but it does tell us that the market is setting itself for another big sell off soon. The more bullish/optimistic the market, media and all the financial news pundits are, the more bearish this market becomes. I think sometime after Christmas, or perhaps after New Years, we'll see this market start to roll over again. I'll be watching closely during those times for signs of a turn.