The “Fear Index” is Looking Downright Confident

We had a monster day in the market today. The Dow 30 broke resistance and is testing its 200 Period Moving Average. The S&P 500 has easily cleared its potential resistance. And the NASDAQ is testing ALL TIME HIGHS! So where did the fear in the market go?

Many traders measure fear by looking to the $VIX, which is the CBOE Volatility Index. It is more commonly referred to as the “Fear Index”. It gets its name due to the fact that it measures the 30 day expected volatility of the stock market. This is done bylooking ad the mid-quote prices of the S&P 500 call and put options.

Understanding the $VIX

Basically, high readings of the $VIX mean that the market is fearful. Low readings would mean that there is confidence in the market. So let’s look at how the the $VIX looked after today’s session.

Today the $VIX closed at 25.66. The pinkish area shows every session where the $VIX was higher than this level. So we can see that the $VIX hasn’t been lower than this since February 25th – that’s over three months!

Now, you can see that it hadn’t been above that level in the previous six months before February 25th. But lets look at an extended view of the $VIX to put that in perspective.

You can see that there various times over the last five years that the $VIX was above it’s current level. These were times when uncertainty entered the market. But that uncertainly was short lived. That’s very different than what we say in March when the $VIX was over 80!

So we are currently in a more “uncertain” period instead of a “fearful” period according to the $VIX. With the broad market indexes showing impressive strength and the $VIX falling fast, we can see that the bullish sentiment in the market is pervasive to say the least.

Jeff Drake
True Edge Trading