Fear and confidence ... two opposite emotions that play an important function in the stock market.
With fear and negative expectations, investors won't buy ... or worse, they will SELL driving the market down.
With confidence and positive expectations, investors will BUY, driving the market up.
The Volatility Index (VIX) is a key indicator that many call the "fear index". It is an important index to follow to have an understanding of who has the upper hand ... the fear based investor or the confident, high-expectation investor.
This morning's 60 minute VIX chart shows you the swings in investor sentiment since last September.
A quick view of the chart shows a clear triangular pattern that has developed since the end of last October. Technicians understand the importance of the resistance and support levels of such patterns because they are very important inflection points.
What's an inflection point? According to the dictionary definition, it is "A moment of dramatic change, especially in the development of a company, industry, or market.'
Where are we now on the VIX?
We are at an important inflection point because the VIX has moved down to a point where it is now close testing its support level. This is an important event to focus on this week.
What happens when you have an equal number of each group?
Then you have a face-off ... a confrontation between two opposing groups or players. That is where we are now as we start the week ... and what the Government does this week will be a key as to who wins this battle.
Don't be fooled if the VIX drops below support BEFORE a Government decision/announcement, because if a decision is deemed as unacceptable by investors, it would send the VIX back up.
You will know if the optimist win this week, because the VIX would fall below the support and make its way down in the green circled area after the auto bailout decision. If the fearful win, the VIX will end up remaining inside the triangular area. This is important because the markets will go in the direction of the winner.
