We have some BREAKING NEWS: A market drop will occur again.
Just not right now.
What we’re seeing right now are people still afraid of entering the markets. People who continue to say that the markets are too high, that they want to wait for a market correction to put cash to work. To us, this sounds like a still weary investor. Not one that is participating in a bubble.
So what can you expect? You might recall our AJC Bargain Hunter article a few weeks ago that referenced how quiet the market has been and the VIX falling to a recent low of under 11, the lowest it has been since February 2007 and close to the lowest level in its history. The VIX, a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, is a measure of implied volatility in the market over the next 30 days.
Some analysts were pretty nervous about this dip in the VIX and believe that this low VIX is a clear signal of investor “complacency” with the stock market. In other words, “complacency” could lead to a world of trouble for the market.
So does a quiet market mean trouble? Are investors weary?
Our take on this is that markets don’t crash because of a low VIX. They crash for reasons that make the VIX high, and reasons that create volatility — like fear. Whether it is fear of war, terrorism, recession, or market bubbles popping – all of these factors can cause the VIX to rise.
Bottom line, we think that investors are less complacent and more confounded. And the current stock market looks fairly valued, not cheap, but also not overpriced.
Do you think a drop in the VIX is an indicator for a market drop?