Friday, October 14, 2011

The Fear Index

The MarketPsych Fear Index has remained high despite the recent rally in the S&P 500.  This is actually a very bullish sign for the next couple of months.

Investors "anterior insulas" are still "hot" from the unexpected and relatively traumatic selloffs of August, and as a result, most of those with a hair-trigger panic-sell reflex already exercised their right to sell at the bottom.

You can see the cumulative mutual fund outflows inspired by this fear in the following chart:
While uncertainty and volatility is virtually guaranteed for the next 12 months (pending election, further defaults in Europe, Iranian belligerence, etc...), we're likely to see an equity rally through year-end.

Happy Investing!

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