The ‘Fear’ Indicator and Uncertain Markets
When you wake up tomorrow, the fate of the world will still be in question.
There is a good chance that Armageddon has not happened and there is a certainty that the stock market will open with a new day of challenges.
History has proven that the market will continue to rip down and rally higher, and often chop along with no clear direction.
What’s the safest trade going forward in an uncertain world, and market?
First, realize that “safest trade” is a relative term and the market is as risky as ever. And, it is filled with as much opportunity as ever.
Second, opportunity may lie in a simple fact about the market: everything eventually reverts back to the mean.
One area that has consistently reverted to the mean is the VIX (CBOE Volatility Index). The VIX tracks the 30-day implied volatility of the S&P 500 futures using options prices, and is considered a “fear” indicator.
Is the current level of the VIX a play worth pursuing as the market rumbles toward the New Year?
When considering the VIX, keep in mind that media companies make money selling fear and anxiety, so be careful not to make trading decisions based on the hype.
There are always issues, events, news, economics, and politics swirling as the market moves, but how do we look at the current backdrop of the market and find an edge that offers opportunity to create income?
Nobody knows what will happen tomorrow, so make sure any plays – VIX or otherwise – coincide with established trading plans to manage risk.