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No Fear Here

March 28, 2012
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If you read the financial media as much as I do, you’ve likely read about how little fear there is in this market right now. One such measure of the lack of fear is the Chicago Board Options Exchange’s (CBOE) Volatility Index, more commonly known as the VIX.
 
The VIX is quoted in percentage points, and translates roughly to the expected movement in the S&P 500 index over the next 30-day period. If the VIX is rising, it means there is strong anticipation that sellers are about to gain control, i.e., putting more fear in the market. Conversely, if the VIX is trending lower, it means bulls are firmly in charge of the ranch, and thus reducing fear.
 
So far this year, the VIX has plunged more than 50%, indicating that fear has not been a factor on Wall Street in 2012. In fact, the VIX now is trading at its lowest point in nearly five years, and the fear gauge appears to be running on empty. The chart below of the iPath S&P 500 VIX (VXX) shows just how little fear is present in this market right now. 
 

When I look at this chart, and the lack of fear it displays, my contrarian meter gets pegged to high. In fact, I think the lack of fear in the markets is exactly when you should really avoid going long in stocks.
 
Remember that when everyone gets bullish, usually that’s the time when the smart money takes its profits and heads for the safety of cash. As you see fear get tossed aside in favor of intrepid buying by the herd, think of it as a sign that the end of this bull run is getting very, very close.