The New, Most Accurate Fear Indicator

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In the most recent edition of the Sunday New York Times Brian Stelter wrote an article about how " ...increased market volatility is helping the ratings of business TV channel CNBC".

Why should you care? Because the frequency of this search term provides us with perspective into the movement in today's stock market. Armed with this perspective, we are better positioned to understand what actions, if any, we should take.

It appears that when fear is the most palpable investors look for guidance, and for some odd reason CNBC is most popular source.

While it is next to impossible to find historical ratings for CNBC viewership without being a subscriber to TV ratings giant Nielsen, there are other alternatives to assess the network's popularity. One example is global online searches for the term "CNBC".

Due to the increase in online viewership over the past several years, and a subsequent decline in TV viewership, Nielsen no longer provides the only accurate measure of ongoing interest in CNBC.

Websites that monitor web traffic - like Alexa.com, Compete.com and various others - show a recent surge in web traffic to CNBC.com .

But it is the new or infrequent viewers that offer the most telling insights. It is the panicky investors that are going to the site for the first time in months or ever during a time of financial crisis that create the spike in web traffic to the site.



What puzzles me however is that people actually search for the term 'CNBC' rather than simply go to the website directly - in other words they go to the most popular search engine, Google (Nasdaq: GOOG), search for the term 'CNBC' first - and then proceed to click on the CNBC links offered from Google's search page.

Whatever their subconscious is telling them (mine is telling me to buy Google stock!) is another matter, since today I care most about looking at the volume of web-traffic to CNBC - and the use of Google's search function is helpful here.

By checking Google Trends (measure that shows how often a particular search-term is entered relative to the total search volume across regions of the world), we can look at the history of internet searches and verify that indeed the search term 'CNBC' is surging.



Let's return to the question - why do we care about a surge in searches for CNBC?

Because, like the NY Times speculated, there is a distinct and positive correlation between search for CNBC and market volatility.

Check out the chart below from Jason Goepfert of Sentimentrader.com to see how fear, market volatility and searches for CNBC correlate. His chart is quite telling.




As you can quickly see from Jason's chart above, there was an extraordinary surge in searches for CNBC over the past couple of weeks. In fact, it was the largest spike since October 2008. As Jason Goepfert stated "only that extremely volatile period in September/October of '08 can match what we saw last week in terms of people seeking information on that channel".

But there is an additional note of interest to the chart above. As you can see from Jason's chart above more than a few times, "surges in global online searches for CNBC have preceded spikes in the VIX". The VIX is a measure of implied volatility of the S&P 500 index options otherwise known as the investor's fear gauge.

If you look closely at the chart you will notice that when there is a spike in global online searches for CNBC, several days later there is a subsequent spike in implied volatility. As Jason points out in his chart, "it happened several times in 2007, during the crisis in 2008, and then again in May 2010 and March of this year".

So what can we, as investors, take away from all this search frenzy?

Like volatility, extremes in CNBC searches in Google tend to be more of a contrary indicator than anything.

So with that being said, the recent surge could be interpreted as a bullish sign that investors were so fearful and uncertain about the turmoil in the market that it led to AT LEAST a short to intermediate-term low in the major market indices like the S&P 500, Russell 2000 and the Nasdaq 100.

Simply stated, the spike in search for CNBC can be seen as contrarian to the current market trend, in this case lower. As I stated in the paragraph above this has been the case as the market has reacted favorably each time a surge in search for CNBC has occurred. However, a short-term pop might only last 1-3 days, so we need to keep that in mind.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: GOOG

Wyatt Investment Research

Wyatt Investment Research

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