I just read an article by Kaitlyn Kiernan at the WSJ about the VIX’s current non-existence. By her words, “Fear has left the building”. Indeed, a look at the drop in the VIX confirms this notion – the Volatility Index recently sank to its lowest level in more than three months, dropping 2% to 12.19 (currently sitting at about 13.12).



So, are investors really losing their fear of the markets? And if that’s the case….is that a good thing?

I’m voting a resounding no on both accounts.

For one, upswings in price across the market have lacked real strength as of late. Volume apparently bid the market adieu along with the VIX, as an average of only 680 million shares are traded per day. I would be more optimistic if the rallies had volume to really pack a punch.

Instead, noticeable index moves currently result from a string of big earnings reports and aren’t a good indication as to the future macro-economic climate. Intra-day price action also tends to trade in a much tighter range.

Furthermore, excessive, irrational fear is a definite negative, as illustrated by the massive price-swings following FOMC discussions a few months back. But a total lack of fear isn’t a good thing either. I believe the market flows as it should when tempered by rationale fear. This would be evidenced by subdued, but present levels in the VIX index.

If this bull market reaches head winds and sentiment deteriorates, I think bids across the board could disappear. Considerable de-leveraging led to a 20% decline in the S&P in February 2011…a repeat of that isn’t unthinkable.

If this happens, a lot of today’s market-victors will be turned on their collective heads and soon become tomorrow’s knife catchers. Remember: pigs get slaughtered. And by pigs, I mean investors who don’t get behind fundamentally solid companies in industries with sustainable trends that have remained impervious to sour-sentiment.