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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
ETF Digest) -- I didn't pursue a Master of Business Administration when I was younger; rather, I felt there would be more value in a Master of Science in Industrial/Organizational Psychology (a.k.a. "the psychology of business").
Why did I/O beckon more than the typical MBA track for financial professionals? In essence, the crash in October of 1987 had a profound affect on my sensibilities; I became keenly aware that the financial markets were more about fear and greed, less about projected earnings and widget sales.
The psychology is somewhat bleak at the present. Certainly, fear is elevated. Even Bob Doll of
Blackrock seems decidedly less bullish than he did at the start of 2011.
Granted, it is not difficult to say that fear is elevated; anecdotally, it may seem obvious. Nevertheless, ETF investors need actual measures to address where we might be on the fear-greed continuum. Throw-in-the-towel petrified may be a potent "buy signal," whereas hold-'n'-hope pessimistic may not be.
For example, one of the most popular measures of fear, the
CBOE Volatility Index(VIX), has remained north of 30 for four months. (There have been a few days where the VIX closed below 30, but not many.) Investors would be wise to track the
iPath S&P 500 VIX Short Term Futures ETN (VXX). This exchange-traded note reflects the implied volatility of the
S&P 500 index. When the current price of VXX is above a critical 50-day moving average, U.S. stock assets are inherently more risky.
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With the exception of a seemingly critical break lower in October, VXX has been "hugging" its 50-day trendline. In other words, we're not getting the kind of spike higher to attract "buy low" value hunters. Additionally, without a substantive move lower by VXX, confidence will continue to be in short supply and equities will struggle to gain significant ground.
Another way to evaluate our location on the fear-greed continuum is to check in on Treasury bonds. While we know that interest rates are low due to the European quagmire, quantitative easing, "Operation Twist" and a probable austerity-driven recession abroad, investor willingness to take on more risk than 2%-yielding 10-year Treasuries can be tracked.