- The “fear gauge” hit 45 on Friday.
- Here’s why that’s as clear a “buy” signal as you’ll ever see.
- Extreme volatility means extreme divergence.
That’s back-to-back days of 4.8% and 6.0% down-moves for the S&P 500 Index.
Jason, my director of research, did the math. It looks messy in this form:
So let me break it down for you: When fear is at these levels, it’s time to buy.
That’s what the price history says. Are you ready to find opportunities?
Remember what we talked about on Friday, before the S&P fell another 6%:
Notice how you’re behaving right now. It’s important that we understand how we react under these kinds of circumstances.
We do that and we’ll be better traders the next time around – you and me both.
I understand if you’re concerned about the risk for further downside from here.
But the data shows that forward returns after situations like this are more often positive than they are negative.
That’s over multiple time horizons. And the returns are often extraordinary.
We only see these types of things during the worst stock market crashes.
Like 1929. And 1933. And 1940. And 1987. And 2008. And 2020.
We can count them. It doesn’t happen often.
The way I see it, when the CBOE Volatility Index (VIX) – the “fear gauge” – jumped from 21 on Wednesday to 30 on Thursday to 45 on Friday, the “buy” signal only got stronger.
Yes: the higher the VIX, the bigger the rally. The data show that the 17.5-to-30 range is no-man’s-land – you don’t want to be there.
When it gets extreme, though, like that 48% Friday spike to 45…
It’s like I was saying…
Are you ready to find opportunities?
This Week in Everybody’s Wrong
Seems like a long time ago now, but on Monday we talked about whether you own enough commodities. Gold and Copper are hitting new highs.
Here’s why the next thing to move in the biggest commodity supercycle in human history is energy.
On Tuesday, we checked in on Bitcoin (BTC) and the cryptocurrency market – it’s quiet over there, and some sideways price action is positive.
Here’s how to see our next opportunity to buy BTC – before it breaks out again.
On Wednesday, we revisited the collapsing dollar and explained how it’s fueled one of the greatest rotation trades we’ve ever seen.
What we’ve learned will help you catch the next big rotation – and all the opportunities that come with it…
On Thursday, we broke the 3% down threshold – that’s not good, but I’ve learned many hard lessons from past experiences like this.
And I’m happy to be able to share with you what I’ve learned.
Finally, on Friday, it was a lot like Thursday.
So it’s probably a great time for all of us to do like my friend Dr. Phil Pearlman always advises when it looks like the world is coming to an end…
Let’s go take a walk. Let’s look at the big picture.
And let’s get ready to identify favorable risk-reward opportunities out there.
And some huge potential squeezes too…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs