The stock market has done a great job of reminding traders that low levels of volatility are ALWAYS followed by high levels of volatility, and vice versa.

We got the “higher levels of volatility” this week. And for next week, it looks like we’re set up to get a little “vice versa.”

Take a look at this updated chart of the Volatility Index (VIX)

The VIX is on the verge of generating a new short-term broad stock market buy signal. VIX buy signals occur after the index closes above its upper Bollinger Band, and then closes back inside the bands.

The VIX has closed above its upper Bollinger Band for three straight days. And, if the VIX closes lower at all today, it’s likely to close back inside the bands – generating a new buy signal.

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Over the past year, the VIX has generated four other buy signals. They’re circled in blue on the chart above.

Here’s how the S&P 500 performed following each of those signals…

All the buy signals occurred at the end of a downtrend. And all of them led to at least a short-term rally in the broad stock market. Heck, even the small blip higher following the VIX buy signal last October was good for about 60 S&P 500 points.

There has been a lot of technical damage done to the stock market this week. There’s a good chance the late-April high of 2950 on the S&P 500 may prove to be the top of this ten-year bull market. That means stock prices may be headed lower, perhaps much lower, in the weeks and months ahead.

But, for the next several days anyway, traders should be aware of the potential for a VIX buy signal. If it happens, we’ll likely get a pretty good bounce higher in the market over the short-term.

Best regards and good trading,

Jeff Clark

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Reader Mailbag

In today’s mailbag, a Market Minute reader shares a profit booked on bitcoin…

Nice trade on bitcoin, which I took when you recommended it. I closed the trade today for approximately $15,500. Excellent work on your part.

– John

A Delta Report subscriber also shares a booked profit…

Jeff, thanks for the nice trade! In at $1.68 per contract and out at $2.80.

– Jake

And a few subscribers share their current trading strategies…

I have purposely reduced my portfolio’s overall beta average. Having had too little money invested in bonds for too long, I am systematically working my bond holdings up toward more desirable levels…

Based on earlier warnings from you… I had analyzed the entire portfolio and sold everything that did not weather last October’s drop very well. I held onto the holdings that went up in October but fell in December (primarily income-generating names). 

In a $800,000 portfolio, I am only down $1500 today, with the S&P 500 currently down 28 points. I can live with that, in spite of being retired. As you can tell, your advice weighs heavily on my decisions. I am very thankful for your guidance. Keep up the good work.

– Ray

Newbie here. Taking small trades as I get my feet wet. First one profitable. Second expired worthless. Just closed another position, after sweating yesterday as the price of the option went back down. Back to happy because I took the sub offer after watching your trading webinars for the last few months. Keep up the good work.

– Fred

I’ve been with you for many years now and keep learning as well. I like the way you follow the broad stock market with the S&P 500. Now, for a couple of months, I’ve followed $NYSE. This index closed today under its 50-day moving average and looks more vulnerable than $SPX.

– Pierre

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at [email protected].