European and U.S. Stocks: Let’s Put Complacency in Context

This stock market measure recently fell to a three-and-a-half year low

Back in February 2020, stock market investors in the eurozone were as comfortable as the proverbial “bug in a rug.”

The Euro Stoxx 50 had been steadily rising for several months and many observers were anticipating more of the same.

However, this complacency, or lack of fear toward stocks, can be a financially dangerous mindset.

Our July Global Market Perspective compares current complacency with what was on display back then. Here’s a chart and commentary:

The VStoxx indicator — Europe’s equivalent to the CBOE Implied Volatility Index (VIX) — uses options premiums to approximate complacency and fear. On June 16, the indicator fell to 13.07, a three-and-a-half year low that dates back to February 19, 2020. Back then, the Stoxx 50 topped the following day, on February 20, 2020, and fell 40% in four weeks.

Keep in mind that a low in fear gauges, like the VStoxx indicator or the VIX, does not always mean a big market turn will occur the very next day.

For example, in the U.S., the CBOE Volatility Index has been quite low for weeks.

Here are a couple of headlines from the past month or two:

  • The market’s ‘fear gauge’ just hit its lowest level since January 2020 (Yahoo! Finance, June 23)
  • VIX just keeps getting harder to find. Low market volatility is music to stock investors. (Marketwatch, June 13)

Even though these headlines were published in June, the Dow Industrials registered its 10th consecutive positive close on July 21 — the longest winning streak since 2017. As I write, the index is trading higher again on July 24.

In other words, complacency can persist for a while before fear rears its head again.

So, global investors may want to combine the message of fear gauges with the Elliott wave patterns of major stock indexes — whether in Europe, the U.S. or elsewhere.

You can get our Elliott wave analysis of major global financial markets by following the link below.

“Human Nature Does Not Change, Nor Does Its Pattern”

The quote above comes from Frost & Prechter’s Wall Street classic book, Elliott Wave Principle.

Think about the truth of the quote: during every market cycle, some investors proclaim that “it’s different this time.”

Yet human nature drives price trends, so the patterns of investor psychology never change. That means financial markets are predictable.

Learn what our analysts are telling subscribers about the next big moves in key global financial markets like stocks, bonds, cryptocurrencies, forex, metals, energy and more.

Click on the link below to learn more now.