Like a cool breeze on a hot day…the post-Brexit market rally has soothed investors.
The CBOE Volatility Index (VIX), also known as the fear gauge, fell significantly during the past few weeks, according to CNBC.com. The VIX measures investors’ concerns about future volatility. The lower the Index is; the calmer investors are about the future. In late June, the VIX rose as high as 25.76. Last week, it hovered around 12.
Barron’s reported the latest advisory sentiment readings from Investors Intelligence showed bullishness at 54.4 percent, up two percentage points from last week. That’s the highest reading since April 2015 (just before the S&P 500 hit its previous record).
The relative serenity of investors has been good for markets. By the middle of last week, the Dow Jones Industrial Average (Dow) and the Standard & Poor’s 500 Index (S&P 500) were at record highs. Not everyone is convinced investor positivity is a good sign, however. Barron’s explained:
“After nearly two years of sideways trading, albeit with some large swings, the indexes finally gave what should be an important buy signal. But is it really? …I am not talking about the simple divergence between price and volume during the June-July rally, although that certainly does not help the bulls. Nor am I considering the seasonal cycle, which teaches us to ‘Sell in May’ and sit out the usually weaker summer months. And I am not talking about any news from politics to Brexit to terrorism…What really bothers me is the lack of dissent in the bullish chorus.”
If this keeps up, then contrarians, investors who use popular opinion as a gauge of what not to do, may find themselves leaning toward pessimism.
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* “Is Sentiment Too Good?”
http://www.cnbc.com/2016/07/19/no-fear-heres-why-the-vix-has-cratered.html http://www.cboe.com/micro/vix/historical.aspx (For June index readings choose Historical Daily Prices – Spreadsheet with Closing Prices for Several Indexes)