Two complacency indicators, one now at a technical decision point

Have a look at 2 charts which are tracked by many as indicators of complacency.  The first is the so called "VIX" (Volatility Indicator).  It is really a measure of options purchases.  When people don't purchase options for insurance against short term volatility, it means they think everything is in hand, no need to worry.  Right now, with the VIX at such low levels, complacency is high.

Of course, that's when Mr. Market does most of his most unusual moves.  Low or high values on the VIX indicate a crowded trade.  In this case, everyone and their dog is long the market with the sure and certain knowledge that Bernanke can and will print endlessly.  Debasing the dollar, they think, should be bullish for equity prices.   And so it has been since 2009.  But now that everyone is long, the only way to make money will be to crash the market somehow after first selling out.  We just had the Boston bombing and the market didn't even flinch.  I guess they will need something bigger in order to get the herd moving into panic.  Perhaps another 911?  No, that probably won't do it.  The patsies have already seen that trick before...

The next complacency indicator is the JNK ETF.  JNK is a junk bond (i.e. high risk debt) fund.  People think that endless printing is going to cause inflation that will enable the perpetually indebted to pay off their debt with worthless dollars.   This chart is interesting because it formed a so called ending diagonal with 5 waves up that broke down below the lower support line and is now testing the junction of the lower and upper support lines.

This could of course go either way.  If it breaks above those resistance lines, inflation is likely winning the battle for now.  But if it cannot break out and if it in fact instead breaks down, especially if "with gusto" then I think it will be a sign that the next wave of global deflation is upon us.  In this case it would form a double top and the damage is likely to be severe.  But JNK will not break down in a vacuum.  If JNK goes down, everything is likely to go down including stocks, bonds (with rising interest rates) and perhaps even metals.  Even though metals might go down, their buying power will remain because corn, wheat, oil and other commodities will certainly go down in a deflationary move.  Metals, as I have always said, are not intended for "making money".  Their only value is the preservation of your buying power.  The main difference between metals and stocks here is that stocks can and will go bankrupt with a value of zero in a massive deflationary crash.  Gold and silver never will be considered worthless.