US Investors Not Panicking...Yet - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

US Investors Not Panicking…Yet

The financial media is on full alert for a collapse of the Euro and possibly the global markets. However, “fear” as measured by the VIX is not showing the same level of panic from investors.

The VIX is about to trade above its 200 day moving average – which may create a few sell signals in some portfolios. The real indication that investors are throwing in the towel and running for the hills will be if the VIX spikes above 30.

Investopedia explains ‘VIX – CBOE Volatility Index’

The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

Taking a look back at the past two times that Europe’s problems were front and center, the VIX was at a level much higher than it is today:

I get the feeling investors are assuming that the Fed will create QE3 soon and will pump up the markets as it has in the past. Any indication from Ben Bernanke and the Fed that it will not do so will cause the VIX (and fear from investors) to most likely spike much higher.

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