There is nothing to fear except the lack of fear.
With Veterans Day coming Thursday, I apologize to President Franklin D. Roosevelt for borrowing from his first inaugural address, but under the current circumstances it seemed fitting to take some liberties with his quote.
I know I have expressed my cautious beliefs during the last month, but when we see indices jumping more 22 percent in a two-month period, I tend to become nervous. When I become nervous, I also become cautious.
During the past week, the twin fear gauges of the VIX and the VXN both hit their lowest levels since the end of April. The VIX, which measures the fear associated with the S&P 100, hit a low of 17.92 on Friday. The VXN, which measures the fear associated with the Nasdaq, hit a low of 18.63 yesterday.
When there is very little fear in the market, this is when we need to worry the most. While the fear gauges have been lower, the last time they were this low, the market corrected to the tune of 17 percent during the ensuing two-plus months.
The sentiment indicators continue to stack up on the side of the bears — from a contrarian standpoint. If you are fully invested in equities right now, this should serve as a call to take action by taking gains off the table or hedging your portfolio.
© 2013 Moneynews. All rights reserved.