When I started writing this article on Monday, the VIX was down some 2.5% as the Dow was -30. Things changed quickly, as expected.
2014 has started out much differently than many were expecting. For the first time in five years, we saw the first five trading days of January in negative territory. The Dow is some 290 points off its highs, but yet it is nowhere near the worst performing instrument in 2014.
The VIX, which typically move up when the indexes are moving down and down when the indexes moving up, has been decoupled. It is something to take note of, because it is telling us that traders are ignoring price.
When complacency hits as the indexes are down, fear is usually forced onto the plates of traders. From January 2, 2014, the VIX is down more than 15%, as the Dow has had only two green days in all of 2014. The retail public has been hypnotized into believing every dip is a buying opportunity.
That formula has worked out great since the 2009 lows and it may prove correct again. The biggest difference between now and then, everyone has been scared of a market crash for five years. Now they are scared about missing the next buying opportunity.
Those types of % moves are anything but normal and as traders are throwing out protection as the indexes are falling, you should be prepared for the rug to get pulled out. Institutions are always on both sides of the tape. If they see an opportunity to make more money with a down market, they will take it. I wouldn’t be surprised to see that type of breath taking move lower-hit soon.
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