Capitalogix Commentary 03/14/11 - Are Traders as Scared as They Should Be?

Last week had massive earthquakes, a nuclear reactor melt-down, and Mid-East turmoil spiking gas prices higher.  So, investors should be scared ... right?

 

 

Japan is one of the world's largest economies; so, imagine what you'd think if an event like that occurred here.  Think of the lost productivity, business closings, insurance liability, global supply-chain issues, etc.  Still, reports are that the effects won't be as bad as they could have been.

As a trader, I'm watching the response to the news (rather than simply responding to news itself).

So far, there hasn't been much fear.

Perhaps Investors Aren't as Scared as They Should Be?

The VIX is regarded as the "Fear Index" by many.  Consequently, you might expect it to be screaming "Fear" after the decent-size market drop in the context of recent world events.

Instead of a "Day of Rage", we have seen raging tranquility and a market acting like it is relatively undaunted by concerns.

So, let's look at a VIX Futures contract chart to see what the VIX is saying ...

With the growing sense that the market is overdue for a correction, some investors may be losing confidence that the market's rally will continue.  Nonetheless, there hasn't been much selling pressure.  In fact, the markets have shown remarkable resiliency and ability to attract buyers.

Here is a daily chart of the S&P 500 Index.

Viewed another way, this is where Bulls will likely try to defend the up-trend.  Will the market attract buyers ... or will risk start to weigh more than its potential reward?

Business Posts Moving the Markets that I Found Interesting This Week:

• QE3: Will The End Of QE2 Ruin The Party For U.S. Stocks?  (Forbes)
• What's the Point of the Financial Crisis Report?  (Atlantic)
• High-Frequency Traders Transacting Blocks of Shares Away From Exchanges. (Bloomberg)
• It's the Inequality, Stupid: Eight Charts Worth a Glance.  (MotherJones)
• Did 'Financial Terrorism' by Outside Forces Cause The Economic Crash?  (TheWeek)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• How Steve Jobs Gets Things Done? (NetworkedBlogs)
• Meet the Microworkers: Online Workers Paid by the Task. (BusinessWeek)
• Spousonomics: Can Economics Teach Us Anything About Relationships? (Slate)
• Top 10 Mistakes In Behavior Change. (DerekFranklin)
• Video of a Dog Performing Surprisingly Useful Tricks. (YouTube)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• Can you trust the Vix? (ftalphaville.ft.com)
• I'm hedging my stocks by going long volatility (investmentpostcards.com)