Market Complacency

While most people and the mainstream financial media often look at the spot VIX to gauge the level of fear in the market it really only tells a small part of the story.  The CBOE also provides values for VIX to track the expected volatility for each of the next nine months into the future.

An interesting point and indicator for market complacency is that the sixth month VIX future (May 2013) continues to float near its lowest point (20.5) since Oct 12, 2007 – the day after the S&P 500 hit its all-time high. This suggests that very few traders see a need for protection in the market at these levels, with an assumption that a market-positive fiscal cliff deal will get done, that the sovereign debt issues in Europe are under control, and the belief that the FOMC’s dovish policies will provide continued help for a domestic economic recovery.   While not a signal for a market sell off, it may serve as a good opportunity to pick up some protection in case the market turns down.