The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
It's not too late to find that perfect, fright-inducing Halloween costume. Might I suggest you go as a Wall Street trader?
Investors are once again pretty scared about where stocks are going next. CNNMoney's Fear & Greed Index, which measures seven indicators of market sentiment, fell to "Extreme Fear" levels on Monday.
The move took place as tech stocks plunged and the VIX (VIX), a gauge of volatility that is one of the components of the Fear & Greed Index, spiked more than 13%.
Now it may seem odd that the market is this jittery.
The Dow and S&P 500 are barely below the all-time highs they hit last week. The Federal Reserve has signaled that low interest rates are here to stay for awhile. And the Alibaba (BABA) IPO was a smashing success. What's not to love?
But all those factors might be helping to create more fear.
With stocks continuing to march higher, you can understand why some investors are nervous about market valuations and are doing their best impersonation of the robot from "Lost in Space." (Danger, Will Robinson! Danger!)
The Fed's willingness to keep rates low also may be setting off some alarm bells among investors who are worried that the central bank is behind the curve in fighting inflation.
Long-term bond yields have been on the upswing after hitting their low point of the year in early August. (Is a month and-a-half a "considerable time?" Discuss.)
And the Alibaba IPO? If you are at all worried about how 2014 is 2000 all over again, then let's just say that a 38% pop in shares of a Chinese e-commerce company that most investors have never used is pretty good ammunition for the bubble argument.
So should you be scared? Yes and no.
If you take a closer look at the indicators in our Fear & Greed Index, there are two in particular that are the most worrisome. Stock price strength and stock price breadth are both mired in Extreme Fear territory.
Price strength refers to how many stocks are hitting 52-week highs versus lows. The number of stocks at new peaks is not as high as it normally is as there has been an increase in the number of stocks dropping to 52-week lows. That's not good.
And on a related note, stock price breadth measures how many stocks are going up or down on a daily basis. Over the past month, a bigger chunk of trading activity took place with stocks that were declining than stocks that were heading higher. Also not good.
But it makes sense. My colleague Matt Egan has already pointed out that more than half of the stocks trading on the Nasdaq are actually down at least 20% from their 52-week high. That puts them in bear market territory.
What's that mean? The rally we've had this year has been pretty shallow. The big gains in the largest stocks on the market, companies like Apple (AAPL), Facebook (FB), Microsoft (MSFT) and Intel (INTC) are helping to lift the broader market.
Now here's the good news. The Fear & Greed Index has been in "Extreme Fear" mode several times this year, most notably in early August. But investors have shaken off these fears for the most part.
Many experts have talked about this bull market (which has now been going on since March 2009) as perhaps the most hated rally ever. There are many market skeptics who keep waiting for the rally to end.
The naysayers may eventually be right. But they've missed out on an amazing run in stocks while they've been sitting on the sidelines questioning the validity of it.
The return of some market volatility is arguably a good thing. Although the VIX is still at relatively low levels, it's slightly higher now than where it started the year. In 2013, when the Dow, S&P 500 and Nasdaq all surged to double-digit percentage gains, the VIX plunged nearly 25%.
The increased bumpiness may frighten away some investors who are taking too many speculative risks. And it may attract more investors who are hunting for bargains to buy following those proverbial dips.
So investors may have no real reason to be scared until the Fear & Greed Index starts to show signs of Extreme Greed again.
To twist that famous FDR quote, the only thing we have to fear is the absence of fear itself. Complacency is a much bigger cause for concern. We don't seem to have that here.
Remember how stocks did nothing but go up all the time? That's so 2013.
Volatility is back. Investors are growing increasingly jittery about geopolitical flare-ups in Ukraine and Gaza (and beyond). People are worried about market MOREPaul R. La Monica - Aug 7, 2014 12:29 PM ET
There has been a lot of talk about how this bull market is starting to look like 2007, 2000 or -- gasp! – 1929. Forget a 10% correction. The market is destined for a crash!
But MOREPaul R. La Monica - Jul 22, 2014 1:23 PM ET
The Dow may have fallen more than 100 points on Tuesday, but don't let that minor selloff fool you. The stock market is enjoying its longest stretch of calm since Mel Gibson battled the Brits as William Wallace in the blockbuster film "Braveheart."
During the turbulent days of 2008-2011, Wall Street experienced 1% moves almost regularly amid deep disagreement over the state of the global economy.
But the S&P 500 has gone 47 MOREMatt Egan - Jun 25, 2014 12:30 PM ET
Even though the S&P 500 is not too far from its all-time high, it's been a reluctant rally. Investors are still nervous.
How do I know this? Well, the CNNMoney Fear & Greed Index continues to MOREPaul R. La Monica - May 22, 2014 1:42 PM ET
The stock market bull is still alive and well in 2014. But he's been bucking a lot more wildly this year.
Where's John Travolta and Debra Winger when you need them? Wall Street traders are the MOREPaul R. La Monica - Mar 18, 2014 12:48 PM ET
With stocks back in record territory, investors are getting greedy again.
CNNMoney's Fear & Greed Index shot back into Greed mode Thursday for the first time since late May, as the Dow and S&P 500 rallied above their record closing highs from May, and the Nasdaq climbed to its highest level since October 2000.
The return of the bull comes as investors have started feeling more confident about future policy decisions from MOREHibah Yousuf - Jul 11, 2013 2:42 PM ET
We all know that bears hibernate. But what about bulls?
It's been an unnerving couple of weeks for investors. The Dow is off more than 5% from the all-time high it set on May 22, while MOREPaul R. La Monica - Jun 25, 2013 12:34 PM ET
The recent ups and downs in the stock market may be frustrating, but one strategist said the break in the rally is also creating an attractive entry point for investors who remained on the sidelines during the first few months of the year.
"The market has been up, but a majority of investors have not participated," said Nathan Rowader, director of investments and senior market strategist at Forward Management, an investment MOREHibah Yousuf - Jun 14, 2013 10:31 AM ET
Stocks bounced back Tuesday after their worst sell-off of the year. Gold rebounded as well, following two consecutive days of staggering declines.
It's a good sign that stocks (and to a lesser extent gold) are stabilizing. MOREPaul R. La Monica - Apr 16, 2013 12:22 PM ET
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