Investors Aren’t That Worried Yet

By on June 13, 2011

The proprietary Tactical Timing System Fear Index, used here to gauge the level of investor anxiety, has not indicated levels of fear typical of a great buying opportunity. At its current level of 5.2, the T.T.S. Fear Index is slightly above its average over the past 10 years.  Exceptional entry levels have presented themselves when the T.T.S. Fear Index exceeds 6.5. Buying stocks when the index is above this level has been advantageous in the past, although it hasn’t guaranteed immediate profits.

Of course, the market could have a short term bounce with the fear index making a move from 2.8 to 5.2 over a short timespan (6 weeks now).  However, great long term buying opportunities only present themselves every 4-5 years, on average.

The T.T.S. Fear Index is currently composed of 6 components. The only indicator flashing above average investor queasiness is a 5 day average of the put/call ratio.

Paul Lim at the N. Y. Times comments on the lack of market foresight given by the popular Volatility Index (VIX). The VIX is another component of the T.T.S. Fear Index.  In October of 2007 the VIX didn’t provide any indication the market was about to crack. Lim points out, “In fact, it wasn’t until November of that year, when stocks had already lost 10 percent of their value, that the VIX started flashing a warning sign, climbing to a reading of 30 — about twice the average.”

The VIX can remain dormant for years and during a long bull market this would be expected.  It’s only when it exceeds a reading of 40, indicating extreme investor skittishness, that an exceptional buying opportunity is identified.

With the VIX still under 20, investors don’t appear too worried yet.  Which could mean a much better buying opportunity down the road.

2 Comments

  1. LaMont Grover Cleveland

    June 13, 2011 at 3:32 pm

    The other 4 components of the TTS are 1) Mojo, 2) Darts, 3) Hubris and 4) Jesus’s grace.

  2. Barron Maestro

    June 13, 2011 at 6:42 pm

    LGC (aka Sultan of Savannah, aka Wizard of Franklin), your contribution to the comments of this blog are appreciated, but lets try to be more serious in the future.

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