So What Happens After One of the Greatest Bull Markets in History?

CNBC tells us: What, Me Worry? Investors Are Suprisingly Bullish on Stocks

Call it being complacent over complacency—redundant for sure, but an expression of how even a healthy level of fear has seemed to come completely out of the stock market.

As the stock market has churned to two-year highs, sentiment levels as expressed through a variety of gauges have reflected extremely buoyant attitudes among investors. Surveys from Investors Intelligence and the American Association of Individual Investors both show bullish sentiment more than 2 to 1 ahead of market pessimism.

Similarly, the CBOE Volatility Index, an options play that is considered a gauge of near-term fear (when it’s elevated) and complacency (when it’s falling), has been hovering around levels last seen in April.

I don’t believe there’s a strong connection between the VIX and future stock returns, though there is some evidence that very low levels (below 13) are good for stocks.

The only connection is that the VIX is a pretty good indicator of future volatility, but it doesn’t say which way. That’s why I don’t get too concerned about where the VIX is. When the recent bull market began in March 2009, the VIX was close to 50.

Posted by on December 15th, 2010 at 2:59 pm


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