The Volatility Index (VIX) is on the brink of a buy signal. And buy signals during the month of October tend to lead to strong multi-week stock market rallies.
For example, the S&P 500 rallied 9% in about nine weeks following a VIX buy signal last October. In 2018, an October VIX buy signal led to a 4% gain in the market within three weeks. We got a similar performance in October 2017.
In 2016, we didn’t get a VIX buy signal until early November (right after the election). One month later, the S&P 500 was nearly 10% higher.
Those are big, short-term gains. So, traders should be prepared to act when, and if, we get a VIX buy signal this year. And, as it turns out, it looks like that buy signal may just be a few days away.
Take a look at this chart of the VIX, along with its Bollinger Bands (BB)… (By the way, click here to check out our new free resources page, including our glossary and training videos.)
Long-time readers know the VIX generates a broad stock market buy signal when it closes above its upper BB, and then closes back inside the bands.
We typically get maybe three or four buy signals each year. And, we’re setting up for one right now.
The VIX closed Monday just below its upper BB. It won’t take much of an increase in volatility to pop the VIX high enough to close above the band. Once that happens, traders should watch for the VIX to come back down and close back inside the BBs. Then, we’ll have our buy signal.
One note of caution, though…
Don’t jump the gun and aggressively buy stocks ahead of the signal.
Once the VIX gets above its upper BB, it can sometimes scream higher for a few days before coming back down. That sort of action usually happens during a strong selloff in the market.
You don’t want to be a big buyer of stocks in front of that.
Instead, wait for the VIX to close back inside the bands and actually trigger the buy signal. That will give you a low-risk opportunity to participate in a multi-week stock market rally.
Best regards and good trading,
Jeff Clark
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Reader Mailbag
In today’s mailbag, Delta Report and Direct members Kevin and Jim thank Jeff for his winning trade recommendations…
I had my first “win” yesterday with your Delta Report service! I haven’t been able to fully indulge, as I had to get my account set up. However, yesterday’s 20.48% gain on your recommendation, in nine days, was a step in the right direction.
I only had two contracts, but I still enjoyed the experience. I bought it lower than the original range and sold a bit lower too. I’m still learning. Thank you!
– Kevin
Hey Jeff, as per your Monday update on Delta Direct you stated, “But, having a little exposure to the downside is a reasonable bet right here. At a minimum, I expect the S&P will come back and test its 9-day EMA as support.”
And it sure did! Those puts I had were spot-on at today’s opening. Many thanks! Best regards.
– Jim
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at feedback@jeffclarktrader.com.