Usually these summer flings are brief and flighty…which is what summer flings should be. They usually average about a 5% gain in the S&P 500. But this fling is positively steamy. After the market topped out in March and then slipped 10% in early June, it’s turned around. We are now in our third month and we are up 10% since that early June low. We’re back, in fact, to where we were in March but looking good indeed with the market way above its 50 day moving average.

But what really makes this rally so interesting is that it has completely ignored all the usual things that would send the summer fling spinning into a rancorous demise.

Why, just look around and just count the ways a fling could run asunder:

Accelerating global economic slowdowns
Tepid and declining earnings
Forecast warnings from major corporations
Eurozone dramatics
Looming fiscal cliff
Miniscule trading volume
Massive investor complacency

Let’s look at that last one, shall we?

Victor VIX is telling us something. And that is that investors are remarkably bullish, confident, and optimistic. That can be seen most clearly in the VIX Index, also known as the Fear Index.

Courtesy - Seekingalpha.com

The VIX got as low as 13.30 last Friday, its lowest level of fear (so, by inference, its highest level of bullishness) in the last five years, lower even than at any of the rally or market tops since 2007. Remember 2007 and how good everything seemed. We were all Goldilocks then.

But just in the last several trading sessions, Victor Vix has a new lease on life…roaring back to as high as 15.50, which is still pretty calm…all things considered.

But recall what happened when Victor went on a frightful bender after his last real slumber back in April 07. We prefer not to but it is emblazoned into our psyche like some ugly tattoo we’d wished we’d never let near our navel.

Before he was done breaking hearts and busting portfolios all over the globe, Victor VIX had hit 90.

So here we are again. We have complacent investors and to make matters worse, exceedingly low volume…the lowest in fact, since December 2007.

Where is Veronica Volume when we need her?

So back in the Goldilocks days of 2007, we had a slumbering Victor and a vanishing Veronica.

Guess what…once that low volume rally ended in late 2007, the Dow plummeted 12% over the next couple of months, while the Nasdaq clipped 20% during roughly the same period.

Ouch…there goes our psychic belly button again.

Once again, we have extremely low volatility and tepid volume. And just recently, we learned that Warren, George and John may be taking flight.

Should we be wary? We strongly suspect that we should.

Over the next few days, time permitting, we will take a look at a few things in Euroland that are likely to make for an interesting September. Stay tuned.