Stocks quoted in this article:
The only thing the market has to fear is lack of fear itself! Or, something like that.
If you believe that fear is a contra-tell, then an increase of fear is good news. Well, guess what, we have some good news via CNN. This graphic, courtesy of Paul La Monica.
CNN has an indicator comprised of seven "Fear & Greed" indices, as seen here. Right here, right now, junk demand remains in an "Extreme Greed" phase, as the market demands a relatively low premium over investment grade corporate bonds. By their estimation, market volatility and put demand are "Neutral," although I'd suggest their measurement scale appears pretty simple. They seem to just use absolute values for the CBOE Volatility Index (VIX), whereas I would suggest using deviations from a moving average to gauge fear in the VIX.
For the record, we're pretty neutral in that respect, as well. The 10-day simple moving average for the VIX is about 14.50, so we'd really need to see something in the mid-16s for this to flip to "fear," and mid-18s for "extreme fear," in my honest opinion.
Anyway, those are the "good" indicators. On the fear side, they show market momentum, stock price strength, and stock price breadth. And finally, in the "Extreme Fear" category, we have safe-haven demand.
Stocks and bonds have provided similar returns during the last 20 trading days. However, this has been among the weakest periods for stocks relative to bonds in the past two years and indicates investors are fleeing risky stocks for the safety of bonds.
All in all, it's a pretty reasonable proxy for our current market mood. We do feel like we've slipped to the apprehension side, but nowhere near an extreme. Are we terrified of tapering again? Probably. But hey, we find out next week what the Federal Reserve has in mind. It feels like a "sell the rumor, buy the news" situation, i.e. we stay heavy until we hear something, then we see some sort of relief rally. That jives with a traditional pattern of late-December strength, as highlighted in this chart from … Schaeffer's Senior Technical Strategist Ryan Detrick, CMT.
It's never quite so simple, but it does sure feel like the current market ugliness and the calendar are meshing perfectly for this pattern to play out.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.