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Yes The Market Is In Fear, But How Much Fear?

As we all know by now, the market is consumed in fear from the worsening European Debt Crisis. But also the fear is starting to lessen as the market continues to rise for the first time in a couple weeks. But that leaves the question, how much fear is there? and how much fear is expected in a couple weeks? These are all important questions as if there is a lot of fear right now then it is a good time to invest in the market if there is low fear in a couple months by expectations, but not good if more fear is projected. But how can someone rate fear. Well the answer is -- that there is no way -- but you can make ideas if investors are fearing the market do to economic trends. Now I am here to tell you what factors would be causing fear. Now if I had to rate the fear from a 1 - 100, I would rate the fear at a 25 (1 being the most possible fear; 100 the opposite). Now why do I think that, now here are 4 reasons why:

  • Stock Price Strength (Extreme Fear): The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme fear.
  • Stock Price Breadth (Extreme Fear): The McClellan Volume Summation Index measures advancing and declining volume on the NYSE. During the last month, approximately 2.45% more of each day's volume has traded in advancing issues than in declining issues. This indicates that market breadth is improving, though the McClellan Oscillator is still towards the lower end of its range for the last two years.
  • Market Momentum (Fear): The S&P 500 is slightly below its 125-day average. During the last two years, the S&P 500 has typically been above this average, so declines like this indicate increased fear.
  • Market Volatility (Neutral): The CBOE Volatility Index (VIX) is at 21.23. This is a neutral reading and indicates that market risks appear low.

All these reasons have in effect on investor confidence and show why investors are fearing the market and the risk of losses in the market, this is why it is weird that the market would be going up in a time like this. But if the fear is expected to keep on lowering then it is a great time to invest in the stock market, as investor confidence usually results in increases in the market.