Monday, January 21, 2013

Fear Strikes Out

We've talked before about the Volatility Index, commonly known as either the VIX or the Fear Index. It's the measure of how much movement - positive or negative - that investors are expecting in the market, as measured by the number of puts and calls they're buying. It made news on Friday, when the Volatility Index reached its lowest point in five and a half years.

The VIX dropped 8 percent on Friday, and has now fallen 45 percent over the past three weeks, basically ever since it became clear that we weren't headed over the fiscal cliff. It closed Friday at 12.46, which is the first time it's been below 13 since April 27, 2007.

These five-year anniversaries are significant because they put us back to a time prior to the meltdown of the financial sector, prior to the onset of the recession. What the lowered VIX is telling us is that investors don't have any more fear or wild expectation from this market than they did in the calm days of early 2007.

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