Complacency Indicator

If you haven’t heard of the technical index with the stock market symbol VIX it is now clip to pay some attention to it. When the number is running low, as it is now, around 15 to 18 it intends everyone is happy and believes the stock market is going to go on up or at least go on on its current way and there is no need to sell anything. This is a measurement of complacency. When the number travels above 35 it intends everyone is very nervous and believes the market is going to fall. It is considered a contrarian indicator.

Wall Street names this the Volatility Index which camouflages its existent implicit in meaning. What it really should be called is the fearfulness and greed Index.

The average investor purchases with a greed motivation when the VIX is low and sells only after fear sets in when the number is high because he is afraid of additional loss. These are emotional minutes and the market is an emotional animal. The truly smart investor have a planned issue strategy before he purchases anything; he cognizes when to sell even before he buys.

Notice that the higher and smoother the motion of the market the more than self-satisfied the investors become. The investor goes overconfident that his pillory will always travel up. It is a truism that investors purchase with lone ideas of how much they will do and never see that it is possible to lose. When I was a broker and a member of the exchange I would only maintain clients who would put stop-loss orders as soon as they bought something. I always stressed protection of capital.

When you are a serious and logical thinking investor you must always believe about loss first. If what you purchase travels up you don’t have got to worry. Winning takes care of itself. Losings don’t.

As of March 26, 2004 the VIX can now be traded like a stock. If the VIX is currently 18.5 the value of the contract is $18,500 and trades in $10 increments. It can be very volatile; a move from 18 to 38 can do (or lose if you are short) $20,000. This is not for the feint of bosom and should be left to the professional speculators.

When you look at the historical charts and tally a comparison of both the VIX and the S&P500 Index you will see the reciprocal correlation. As the S&P travels up the VIX travels down and visa versa.

There are many technical indexes that are used to determine market direction and this is just one of the many. It can be portion of your analysis if you are a technician along with moving averages, assorted ratios and other stratagems.

Whatever you make make NOT go self-satisfied about the money you have got invested in your 401K or any other stock market investment. Protection of your capital is always your first consideration.