It took a while, but volatility finally came back to the stock market last week. And, it looks like it’s going to stick around for a bit.
We’ve written often about how the Volatility Index (VIX) usually bounces pretty hard off of its lower Bollinger Band (BB). That bounce usually coincides with a drop in the broad stock market.
So, with the VIX riding along its lower Bollinger Band for the past few weeks, we recently suggested the relative calmness in the market was likely to be interrupted… soon.
We got that interruption last Wednesday and Thursday when the VIX spiked 50% higher, and the S&P 500 fell 200 points.
And, by the look of the following chart, we probably have another round of volatility coming soon. Take a look at this chart of the VIX…
The sharp increase in volatility last week pushed the VIX above its upper Bollinger Band. And, on Friday, the VIX came back down and tested the upper BB as support.
Now, normally, I’d look at this as a potentially bullish sign for the stock market – since it sets up the possibility of a “buy” signal when the VIX closes back inside the bands. But, things are a little different here in 2020.
Previous VIX buy signals, like the ones we got in late January and late February, led to one- and two-day “wonder rallies” in the stock market. But, those buy signals ultimately failed as volatility spiked again, and stocks fell.
It took two buy signals before stocks rallied in February. And, it took four VIX buy signals before the market finally bottomed in March and the recent “greatest rally of all time” got started.
Technically, the VIX generated a buy signal on Friday by closing back inside its Bollinger Bands. But, I suspect this signal will lead to just another one- or two-day wonder rally. Then the VIX will spike higher again and the market will continue lower.
Traders should probably wait for at least a second VIX buy signal before trying to buy the dip.
Best regards and good trading,
Jeff Clark
P.S. As we see with the up and down patterns of the VIX, volatility is inevitable… But understanding strategies and chart patterns is what guides the next move I’ll make.
My trading career is based off the principles I wrote about in my 3-Stock Retirement Blueprint. This report shows that instead of buying and holding – and hoping the market doesn’t dip – you can trade just three stocks over and over again to fund a comfortable retirement… which is what I did.
In addition to the blueprint, with a Jeff Clark Trader membership you’ll receive eight training videos, the first three sessions of my Crash Course, and a quarterly Q&A (the next being on June 22)… for only $19. Click here to learn more.
Reader Mailbag
In today’s reader mailbag, subscribers thank Jeff for his training and trade recommendations…
Dear Jeff, I just subscribed last week, and have finished going through the training and Crash Course videos in the Jeff Clark Alliance archive. And oh boy, am I glad I signed up for this course. I would like to thank you very much for this and also for the future profits that I’ll be making.
I’m from Asia, and I’ve have signed up for courses here as well, but nothing comes close to the value you’re giving. I’ve yet to put in any trade based on your alert (am anxiously waiting for it), but I’m so looking forward to it.
We want to be financially free (settle our housing debts, credit cards, etc.) and I fully believe that this is the time. So, thank you. I’m looking forward to your issues, alerts, and videos. Cheers.
– Keshbinder
Dear Jeff, thank you very much for the analysis and conclusion of the GBTC chart patterns! Your analysis in late April was spot on! I’m new to your Market Minute subscription, and that was my first time reading your chart analysis.
I bought some Bitcoin in early April and wanted to see it go back down to a certain level. Therefore, I didn’t act after your analysis, but I did watch the move in May and June.
You were right. Bitcoin quickly moved higher and became range-bound between 9,000 to 10,000. Darn it. I waited all of May for it to drop to $7,500 or $6,000 but no luck.
This time I’m heeding your advice, and buying Bitcoin tonight.
Worse yet, during the same time period, I watched Ethereum go from $170 to $250. I waited for it to drop back to $160, so I could buy at, or below, my initial purchase price. That didn’t happen either! I missed a 50% move in Ethereum.
Thank you for generously sharing your excellent chart analysis
– Michael
Dear Jeff, I follow your candid, easy-to-understand, entertaining analysis, and recommendations since last fall, with a lifetime membership to The Breakout Alert. In early January, I purchased shares of NVAX as recommended by you. I ignored your first sell alert for which I apologize half-heartedly.
I then sold two-thirds of my position at the end of March, resulting in a 106% gain calculated on my whole position. From the remaining shares, I sold 90% of the rest in May that was more than 10 times higher than my purchase price 133 days ago.
This is more than both astonishing and remarkable. When I give my colleagues a glimpse of my banking software, they usually conclude that the percent change must be a “software error.” Sincere thanks for all your good work, and the experience you’re sharing with all of us.
– Christoph
I bought the GDX put and sold when you told me to. I doubled my money! I was skeptical, believe me, but was blown away when it worked.
– Christopher
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].