Fear Levels and the Stock Market ...

The market has been dropping this week, and the NYSE New Lows have jumped from 81 last Friday to 258 at the close yesterday. Sounds like higher fear levels doesn't it?

After all, if the "New Lows" increase 318% since last Friday, it would seem like there was some panic selling going on by somebody.

And if there was enough selling to push the market down, then there had to be some degree of higher fear ... right? And since the Volatility Index (the VIX) is considered a reflection of fear (or optimism), it should have moved up ... right? [For those that know, the VIX and the market move inverse (opposite) to each other. In other words, if the VIX moves up (higher fear) the market moves down. If the VIX moves down (more optimism), the market moves up.]

And yet ... the VIX, which is often referred to as the 'fear index", went down.

Since the VIX has moved down since last Friday, the market should have moved higher, not lower. So, why has the VIX moved down since last Friday while the market moved down???

The answer has to do with the level of Inflowing Liquidity coming into the market. It has been high enough to absorb all the selling while only dropping very slightly on a net-net basis. And that helps to explain why the VIX is pointing to an options expectation of a higher market sometime during the next 30 days. (See the actual chart below that show's the market versus the VIX during the past week.)