I had a subscriber call about the Fear Index yesterday and we had a good discussion about the impact of fear levels on another dimension ... so I will share it with you. The analogy I shared with him was one about being a parent relative to fear and "trust" levels.

Imagine you have a 15 year old son. He has been terrific and trustworthy for years. All of the sudden a significant change of behavior occurs. He waits until you are asleep and then sneaks out of the house at midnight and stays out until 4 AM. You catch him and are very upset and fear that something bad could have happened to him while being out in those late hours.

Then ... it happens again 4 days later. This time you have the same fear... but, an important thing occurred this time. You lost your TRUST in him because of his behavior. Losing trust is a significant event because now you "doubt" his good behavior tendency ... and now, he won't regain your trust until her earns it back, and that could take some time to do. The same thing happens to investors. They can go from a point of fear, to a point where they lose trust in the market and need "time" and "evidence" for that trust to be earned back. Until that trust is reestablished, the investor will do very little buying ... and if his fear remains high, he may continue to sell on any advance.

That explains why our Fear Index can be so important.

Today's Fear Index is below, and it is showing that investors are remaining very fearful. Each time that they got a little bit more brave, their trust was lessened afterwards because the fast green indicator line is showing this by making lower tops.

While yesterday was an up day with buying by some of the big money players, the average investor remained scared ... with difficulty "trusting" the market enough to resume buying like they did months ago.

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