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The Fear Gauge Meant Something

CAMS Weekly View from the Corner – Week ending 1/29/21

February 1, 2021

With the calmness of the stock market in recent weeks the Fear Gauge has remained more elevated than one would think. If it continues to hold relatively high it may be offering some concern levels beyond what the consensus is feeling relative to the stock market. – Weekly View January 11, 2021

We titled our first Weekly View of 2021 “The Unrelenting Fear Gauge” whereby we shared a few observations and forward thought experiments relative to the massive (and ongoing) money printing and indebtedness. Per the title, the Volatility Index (known as the Fear Gauge in slang) played a part in the discussion. Our header quote excerpts the curious observation, at that time, relative to the behavior of the Fear Gauge. The backdrop of the stock market was one of a notably tepid uptrend. Tepid uptrend’s always raise our suspicion of their staying power when enthusiasm is so muted, but yet, it was still an uptrend. So why did the Index remain elevated against a calm tepid uptrend? When behaviors do not quite add up in the market landscape it is wise to pay close attention and start asking observatory questions. When diverging behaviors develop collective market participants are sending a message, albeit an unclear message. Nonetheless, regardless of the level of clarity, more often than not it means something.

Click For Larger View:

Above is the Volatility Index dating back to the late summer of 2019. In our aforementioned “Unrelenting Fear Gauge” edition we shared how it remained stubbornly above the twenty level which historically offers some level of uneasiness. The horizontal blue line depicts the twenty level. Per the chart, notice the summer and fall season of 2019 and how it remained below said twenty level. In early 2020 it went straight up for obvious reasons. More to the right side of the chart – December and early January – it would try but refused to penetrate the blue line, hence our curious questioning. Current day, we have seen this rise solidly above the red line. The red line is a 200 day moving average. Traditionally, in charting any price movement in any asset market, the 200 day moving average offers a line in the sand between constructive price action (north of 200) and unhealthy price action (south of 200.) In the case of the above Volatility Index, we see the blue line has held and now the red line has been surpassed. With this, the Volatility Index – a.k.a. the Fear Gauge – is no longer merely offering curious behavior but rather is in full bloom. More to the point, fear is building rapidly. Caution is warranted as market behaviors continue to get more concerning. At this stage we will be watching closely as to whether markets can hold up and display constructive behaviors thereby offering safer times ahead. For now, caution is the operative stance. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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