Stock market suckers are the targets of American financial journalism. The industry wants to keep people’s money tied up in American stocks.
One strategy that the industry uses is bullish headlines. The headline writers re-write the articles to stimulate confidence — even greed. Take a look at this one, published today on MarketWatch.
When you click the link, you are taken to an article on a technical indicator, the VIX, which measures volatility. The headline is subdued: What the Vix says about Europe. Here, we read restrained language.
From the chart above you can see that it’s widely traded and has been in a downtrend since early October, indicating that “fear” has recently been declining in the markets.
Numerous options for trading VIX include put or call options on the ETN, inverse VIX ETFs and even leveraged ETFS that track the VIX. While quick profit opportunities abound in this niche, a couple of words of caution are necessary before treading into these waters. While these ETFs and ETNs are designed to track the VIX, they do encounter tracking error and so are not precise replicates of action in the VIX itself.
If you’re in the camp that believes that the VIX presents a clear picture of the future, other opportunities for declining VIX/rising prices could exist in long positions in beaten down country indexes like iShares MSCI Italy Index (NAR:EWI) or iShares MSCI Spain Index (NAR:EWP) which would likely make huge positive moves if confidence is ever restored in the European region.
So as we head for the Holidays, the headlines scream potential disaster while the VIX remains relatively calm. The VIX says that things aren’t as bad as they seem and that it could be a cheery Holiday Season for Europe and global financial markets, after all.
Notice the cautious language: “. . . huge positive moves if confidence is ever restored in the European region.” The words “if ever” are crucial.
He says that there could be “a cheery holiday season.” He does not say there will be a colossal rally.
He says that the VIX has calmed since early October. Take a look at the chart for the S&P 500. It rose in October, fell for three weeks in November, rose in late November, and is down in December. There is no indication that the declining VIX has done anything to raise the index for the last two months.
Why should we think that anything coming out of the Eurozone in the next two weeks is going to indicate a restoration of confidence, which is what the author says is required to produce “huge positive moves”?
Stock market suckers read the headlines and believe them. They do not read the articles to see if the information in the articles supports the headlines.
Always read the article before you believe the headline.