No fear of fears

I posted a blog here entitled “Are fears out there?” last year when the stock market was hot and strong. There was a widespread complacency and euphoria in the market with extreme low volatility. I think the volatility index, VIX has repeatedly hit historically lows, probably more than 30 times last year. I don’t think it has ever done this before, suggesting no fear whatsoever among investors. That was the time I really got feared about the market, hence the blog (see here). Then late February following the initial shocking crash, the market mounted a very strong rebound that made all the talking heads very euphoric and calling for new highs on the way. That was the time there was again no fear when I got concerned. Therefore I posted another blog here calling "Fear of no fear". But now, we are seeing just the exact opposite sentiment as I’m writing: there is widespread fear in the market and the overall sentiment is extremely depressing to say the least. How do I know? For one thing, VIX has stayed elevated since Feb, a good indicator how nervous the herd investors are. There is another good contrarian indicator: the end of world headlines prevailing in major presses. See what we have seen in the past few weeks:

• CNNMoney “Stop the market! I want to get off! Volatility is back” (April 16)
• The Wall Street Journal  “It’s a Scary Time to Be Trading Wall Street's Fear Index.” (April 22)
• USA Today “How to Get Over Your Fear of the Stock Market.” (April 25)

Pretty scary, isn’t, when all the major headlines are talking about how risky the market is? This is the time I start to see rosy pictures in the months ahead, i.e. don’t be fearful when there is a lot of fear! I think we are very close to the end of this correction phase already lasting for 3 months. I’m convinced we will see new highs in the months ahead this year. Don’t be fooled by the media headlines which are always scaring people at the wrong time and driving you into a wrong direction. Another big scary news will certainly be related to the trade war with China that the headline news has been overwhelmingly pessimistic, trying to convince you that such a trade war is inevitable. Don’t believe it! I stick to my gun that there will be no trade war with China, period!!

But again, don’t take my words as if I was suggesting there wouldn’t be severe declines moving forward. Not at all. As I have said many times, there won’t be a straight line up or down to this matter and we may still see sharp selloffs on the way up. This passing week was a great example how the market could have jerk reactions to the scary headlines. Just don’t be fooled by it and paralyze yourself. Good days are coming and ahead of us!


For the moment, the market is just directionless. Today's rebound seems very strong and powerful but actually it is simply consolidating within a very clearly defined range under all the scary headline noises bombarded around. The market is again doing what it is doing the best: to fool as many people as possible before its decisive move. This is typically a bottoming process and pretty soon it will work its way out to break out to the upside. This is how I’m positioning myself and I suggest you too!