We’ve made it. It’s Friday. Labor Day weekend, hope you all got some big plans.
And hopefully this market isn’t disrupting them. Three straight weeks of losses for the DOW.
Ouch.
To help you keep your head on straight, I have a new feature to introduce today…
If you follow me on Twitter, then you already know what I’m talking about.
The VIX Watch.
VIX, also known as the Fear Index, is the CBOE Volatility Index.
This indicator moves higher as the market moves lower, signaling that investors are spending more money on put options than usual.
It’s been a great tool to analyze the markets, but things are usually so boring when we are on a long-term bull run, that it gets ignored.
Well, not now.
Now it is extremely active, and it is the number one indicator I’m watching. Here’s why…
Two Key Levels to Watch
That’s what one of my Tweets look like for the VIX Watch.
This indicator is one to track closely with two numbers to care about, the 20 and 30 level.
That’s it.
You can ignore anything above 30 and anything below 20 and all the moves in between.
They are meaningless for the big picture.
But the 20 level and 30 level are critical.
It’s an indicator on the underlying health of the stock market.
Below 20, is full steam ahead bullish.
This is when you want to buy, buy, buy, like your life depended on it.
It’s where the VIX spends most of its time during bull markets.
Above 20, and it’s time to pay attention.
It speaks to volatile markets, and I love playing both sides, just like right now.
I’m mostly bearish, due to the overbearing Fed, but I’ll sprinkle in some bullish bets as well.
When it is above 30, lookout.
That’s when bombs are dropping on the market.
This is your sign things are going from bad, to worse. And it pays to play the downside.
The VIX can be simplified into these three sections for one reason – it’s a stable measure of volatility.
It doesn’t climb endlessly or get reset like some ETF that incurs costs.
This is an index, trading from just under 10, to as high as the 80s depending on market volatility.
Take a look:
VIX Chart 1990-Today
See how it just moves from one side way back in 1990, to the other hovering around the same levels.
That’s why this is so powerful.
History doesn’t exactly repeat itself, but it often rhymes.
And bear markets are no exception.
They see the same tendencies play out, over and over again.
We’ll be able to use these simple levels in the VIX to navigate a bear market that could still have a year or two left to terrorize the market.
I’ll leave you with one last takeaway from the VIX.
Whenever it falls below 20, or back below 30, it’s a buy signal.
No questions asked.
Doesn’t matter how grim the picture looks around you.
History has shown that those two levels are clear indicators for rising stock prices.
It could last weeks, maybe months, but it is always ahead of major trend changes in the market.
In the 2008 financial crisis, it went below 30 just a few weeks after the ultimate bottom for the market.
Back during the dot com bubble, it crossed below 30 the same month we got the final bottom in that bear market.
And as we get set to navigate another bear market, this is my go-to tool: the VIX.
Before I sign off, I wanted to get you prepared for next week.
Next week, some exciting things are going to start to take place.
I’ll have a new website, strategies, reports, featured financial experts, and more content than ever before.
And it’s all right around the corner.
It may not all be finalized by next week, but most of it will be ready to roll out.
I’ve been burning the candle at both ends to make it happen and I can’t wait to share it with you all.
For now, I hope you enjoy the weekend with your friends and family.
Next week is a whole new world.
Happy Friday everyone!
Regards,
Chad Shoop, CMT
P.S. Have any questions? Just hit reply and we’ll get back to you ASAP.