Dangerously Bullish

 | Jan 27, 2013 | 7:30 PM EST  | Comments
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Did The New York Times really run a front-page article Saturday on small investors pouring money into stocks? I can attest that it was. Otherwise, if you had any doubt that bullish sentiment is now at extremes, you need to only glance at the Fear and Greed Index put out by CNN Money. This is not anecdotal, as CNN inputs actual indicators into this number, and "extreme greed" here is currently at 94%.

Fear and Greed Index (CNN) -- Dashboard

Source: CNN

Based on a longer-term chart of these numbers provided by CNN, if this ratio has been higher in the past few years, it would only have been by a mere tick: This is the neighborhood where the index has topped since 2010.

Fear and Greed Index (CNN) -- Historical Chart

Source: CNN

I do realize that, according to the pundits, we are no longer in a post-crisis period -- so perhaps this ratio will make it all the way to 100%. Oh, heck, if we are no longer in a post-crisis period, why not above 100%?

On an anecdotal level, I've noticed that the chatter about a "low" CBOE Volatility Index (VIX) has seemingly fallen away from the discussion in the past few days. A few weeks ago it was all anyone talked about. As longtime readers will know, I don't read much into a low VIX. But I decided to take a look -- and, lo and behold, the VIX has not made a lower low in a week. Yet everyone has stopped discussing it. My experience is that, when everyone fusses over something it won't amount to much, but we should pay attention when the chatter stops.

VIX

So, while I don't see much value in the low VIX itself, I am interested in the sudden lack of attention to it. This probably means the indicator is due for a pop of some sort -- just as a reminder that it's still there.

Really, why shouldn't we see some volatility this week? A Federal Open Market Committee meeting is scheduled, it's the end of the month and the employment report is due out Friday. Furthermore, bond yields are once again on the verge of breaking out.

Of all the U.S. Treasury charts I look at, the five-year is the most interesting. It carries the flattest tops, so it's the most obvious potential breakout. If its yield goes above 0.85%, that gap just shy of 1% will beckon. The base measures to 1.15%.

Five-Year U.S. Treasury Bond

Of course, with the market always trying to prove folks wrong, wouldn't it be something if a breakout accompanied this FOMC meeting, only for the employment number to take the indices right back down? Either way, you should respect a move above 0.85% in the five-year.


 

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