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Investors Are Scaring the Heck Out of Me

By Jeff Clark
Thursday, July 12, 2012

Investors are either remarkably resilient or they just don't give a darn anymore.
Think about it... There is more potential for disruption in the financial markets right now than there ever has been... 
Europe is on the verge of imploding. And many of the largest European banks are teetering on the edge of the abyss.  
California's municipalities are declaring bankruptcy one by one.  
Agricultural commodity prices are skyrocketing. Commodity trading firms like MF Global and PFG Best are stealing customers' money.
Corporate earnings are falling.  
Multinational banks are openly colluding to "fix" key interest rate levels.  
China is failing.
The U.S. government's deficit spending is spiraling out of control... The economy is drifting into a recession... And tax rates are set to ratchet higher.
Any one of these conditions should be enough to prompt investors to refill their Prozac prescriptions. All of them together should get us talking about Armageddon, Mayan prophecies, and little spaceships coming just in time to take away the chosen few before the earth erupts into a ball of flames.
But no one really cares. This is what Mad magazine cover boy Alfred E. Newman would call a "What, Me Worry?" stock market. Just take a look at this chart of Wall Street's fear index...
Despite all the rumblings in the world, the Volatility Index (VIX) is barely up off its 52-week low. This displays an amazing amount of investor complacency.
I'll admit, I'm usually among the first to remind investors that the world has a habit of not coming to an end. Things are never as bad as we make them out to be. And somehow, we'll find a way through this mess. But that reminder usually happens when there's blood in the streets, investors are panicking, and traders have a chance to buy stocks at remarkably depressed levels.
That isn't the case right now. And frankly, the lack of fear in the market scares the heck out of me.
Maybe all of these problems have been around long enough that we're just conditioned to accept them. Or maybe investors truly believe the "smartest people in the room" will figure out a solution.
I'm not so sure about that just yet. Economic problems usually don't get solved until there's some sort of a panic that provides the smartest people in the room with a little motivation. By the look of the VIX chart, we're a long way away from panic levels.
Of course, investor fear has a nasty habit of accelerating higher suddenly and without much warning. As you can see in the chart above, the VIX spiked higher last July. It wouldn't surprise me to see something similar this year.
When people do start to panic, I'll be back to singing the same ol' tune – the world has a habit of not coming to an end. If we do get a spike in the VIX and a panic-induced selloff in stock prices, remember the prediction I made on Tuesday... and be ready to buy.
Best regards and good trading, 
Jeff Clark

Further Reading:

If history repeats, a spike in investor fear could present us with some great buying opportunities this summer… Traders who have their shopping lists ready will make quick, tidy profits. "Even though the market appears poised for a sharp decline over the next week or two, now is the time to get ready for an imminent rally phase," Jeff writes. See the chart that proves it here: Put Your Stock Market Shopping List Together Right Now.

In The Daily Crux
Market Notes
"Digital wallet" booming... Visa and MasterCard soar 35%-plus in 12 months.
Chocolate-maker Hershey soars… shares reach a new all-time high.
Video-game publishers are hurting... Take-Two and Electronic Arts hit new 52-week lows.
World Dominating Dividend Growers Wal-Mart and Abbott Labs surge to fresh all-time highs.
Market Watch
Symbol Price
S&P 500 1341.45 +0.0% +1.7%
Oil (USO) 32.33 +2.6% -13.3%
Gold (GLD) 152.99 +0.6% +0.9%
Silver (SLV) 26.25 +0.7% -24.8%
U.S. Dollar 83.49 +0.1% +11.1%
Euro 1.22 -0.4% -13.0%
Volatility (^VIX) 17.95 -4.1% -2.4%
Gold Stocks (^HUI) 438.03 -1.1% -17.1%
10-Year Yield 1.50 +0.0% -48.6%

World ETFs
Symbol Price
USA (SPY) 134.16 +0.0% +3.8%
Singapore (EWS) 12.65 +1.9% -3.5%
S. Africa (EZA) 63.27 -0.1% -5.4%
Japan (EWJ) 9.21 +0.2% -10.0%
Lat.America (ILF) 41.06 +0.3% -15.0%
Taiwan (EWT) 12.06 +0.1% -15.6%
Canada (EWC) 25.69 +0.6% -16.0%
China (FXI) 32.69 +0.8% -18.6%
S. Korea (EWY) 52.96 +0.2% -18.8%
Israel (ISL) 11.86 +0.3% -25.9%
India (IFN) 20.51 +0.8% -28.4%
Russia (TRF) 13.66 +0.2% -36.1%

Sector ETFs
Symbol Price
Retail (PMR) 24.62 -0.7% +14.8%
Utilities (XLU) 36.96 +0.5% +14.1%
Consumer Svcs (IYC) 80.48 -0.5% +10.8%
Big Tech (QQQQ) 63.02 -0.6% +9.8%
Health Care (IYH) 78.82 -0.1% +9.2%
Real Estate (IYR) 64.23 +0.2% +8.5%
Biotech (PBE) 23.01 -1.3% +3.0%
Construction (PKB) 13.51 -1.0% +3.0%
Financials (IYF) 54.65 +0.5% +0.3%
Oil Service (OIH) 35.80 +1.3% +0.0%
Big Pharma (PPH) 38.53 +0.0% +0.0%
Insurance (PIC) 15.71 -0.3% -1.2%
Media (PBS) 14.52 +0.0% -3.0%
Industrials (IYJ) 65.79 -0.6% -4.4%
Software (PSJ) 25.77 -0.5% -5.1%
Transportation (IYT) 91.38 -0.2% -5.7%
Telecom (IYZ) 22.73 +0.3% -5.8%
Defense (PPA) 18.52 -0.8% -6.9%
Water (PHO) 17.96 -0.6% -7.1%
Semis (PSI) 13.90 -0.5% -15.8%
Basic Mat (IYM) 62.60 -0.5% -18.8%
Nanotech (PXN) 6.64 -0.9% -21.7%
Alt. Energy (PBW) 4.24 +0.7% -48.8%

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