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I’ve become much more neutral in my general market outlook of late after being very bearish since the beginning of the year.  I don’t view this as a particularly great time to implement new short positions, but the environment remains too risky to move heavily into stocks.  I have been hoping for a potential washout followed by a bear market rally, but there is one vital ingredient missing for that to occur: fear.  There is no fear in this market.  Granted, the headlines are uniformly negative, sentiment is very negative and consumer confidence is at all-time lows, but there is still no panic in the market.  There is an eery acceptance of what is going on.  The result is very orderly stock sell-offs.

Despite a 18% sell-off in stocks since 2009 began the VIX remains relatively subdued.

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At every tradable bottom during this bear market the VIX has spiked sharply as fearful traders reach outside their comfort zone for protection.   The VIX is up about 20% since the beginning of the year, but most of that move came on February 17th.

Potentially more disturbing is the action in the Yen.  As the Yen carry trade unwound throughout 2008 traders rushed to buy back Yen.  As a safehaven currency it became a good fear gauge throughout the bear market.  Market panics were accompanied by huge upside moves in the Yen.  But we’ve seen a very orderly sell-off in stocks and Yen over the last two months.  Traders have actually become so wary of the Japanese economy that they are shunning what has been a safehaven currency for years.

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The risks in this market remain abundant.  The November low in the S&P is holding for now, but I have a feeling fear levels will be much higher than this when this bear market finally ends….