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VIX Near 4-Year Lows: Bullish or Bearish

Complacency is traditionally a dangerous thing in financial markets. One way to determine whether participants are feeling complacent is to look at the Volatility Index – Sometimes called the VIX or the Fear Gauge.

That fear gauge is currently at the lowest levels in nearly four years – Driven by an expectation the US Federal Reserve is done raising interest rates and a resilient corporate earnings picture.

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S&P 500 VIX Chart (Source: TradingView)

The Morning Wrap has talked about a lot of other indicators bouncing from extreme levels in late October, including:

• CNN's Fear & Greed Index – Which is nearing 'Extreme Greed'

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Source: CNN

• Bank of America's Bull & Bear Indicator – Which has only just exited 'Extreme Bearish' levels as of last Friday, 24 November

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Source: BofA Global Investment Strategy

• AAII Investor Sentiment Survey – In the first week of November, 24.3% of respondents were 'Bullish' vs. a historical average of 37.5%. It's now back up to 45.3%.

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Source: AAII Investor Sentiment Survey

• Currency markets – The Australian Dollar is at a three-month high against the US Dollar and the US Dollar Index, a classic risk-aversion indicator, is hovering at lows not seen since August.

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US Dollar Index chart (Source: TradingView)

Most indicators have returned to neutral or bullish levels. They're not at extreme levels yet, which might provide more fuel in the tank and coincides with the traditional end-of-year seasonality factors. But what happens when the Fear & Greed Index enters 'Extreme Greed' or the US Dollar Index hits extreme oversold levels?