What, Me Worry?

Investors are not worried at all.  Why?  Because investors believe they have a "put" from the Federal Reserve System.  In that any precipitous drop in the market, the Fed will "bail-out" any and all investors that are long equities.  And, why would investors believe the "put" theory?  Simply look at how the Fed has manipulated the equity markets since March of 2009.  Enough said.

Ok, how does one measure this market complicity?  It is measured through various volatility indices that measure the implied volatility for a basket of put and call options related to a specific index, such as the DJIA ($VXD), S&P 500 (VXV), and NASDAQ ($VXN).  When these volatility indices reach extremely low levels, investors perceive little investment risk going forward, which is usually a very good harbinger that the market is ready for a major correction.  As a matter of fact, today's levels of volatility are the lowest since 2007.

The following volatility chart of the S&P 500 ($VXV) indicates how investors perceive a total lack of concern to a significant decline in the market.  I have learned one thing in following the market over the past couple of decades is that the "market will do whatever it takes to prove the majority of investors wrong!"