Managing Editor’s Note: The election is right around the corner… and it’s bringing volatility with it. Several key catalysts are sending us into what market wizard Larry Benedict calls a “chaos period.”
That’s when he says we could see sharp market swings that keep everyday investors’ portfolios subdued… for years, potentially.
That can be devastating to anyone near retirement. And if you’re a buy-and-hold investor… watch out. You can hold through the swings… and still see your portfolio stagnate.
That’s why Larry is holding his Countdown to Chaos event to give you time to prepare.
Tomorrow, Larry will explain the troubling ingredients coming together… and his blueprint for profiting when chaos hits.
Reserve your spot with one click right here, then read on for how this troubling mix is brewing for the markets…
I’m no stranger to chaos in the stock market.
My 40-plus years of trading have spanned some of the worst crashes and bear markets in history.
I traded through the infamous “Black Monday” crash in 1987.
I navigated my hedge fund through the early 2000s’ dot-com bust and 2008’s financial crisis. Each saw the S&P 500 cut in half.
That means I know when the ingredients for a surge in volatility are mixing together.
Things may appear calm on the surface for now.
But when certain metrics start picking up, another chaos period is incoming…
Volatility Creeping Higher
The CBOE Volatility Index (VIX) is a popular tool for traders. It reports expected volatility in the S&P 500.
Many refer to it as Wall Street’s “fear gauge.” That’s because the VIX usually jumps higher when the S&P 500 pulls back.
Daily price movements pick up when the stock market is selling off. Conversely, the VIX tends to be the lowest when stock prices are steadily grinding higher.
But there are two reasons to expect the VIX to pick up soon.
First, this is a time period when volatility picks up historically. If you plot the average volatility for the S&P 500 by month, it bottoms in July and increases through October.
Another reason has to do with the election cycle. Look at the chart below:
The chart looks at the VIX during past elections (when the economy hasn’t been in a recession).
The VIX starts trending higher about a month before elections. Then it really picks up steam inside the final two weeks.
That makes the recent move in the VIX all the more interesting. It’s been trending higher since the end of September.
And if we’re about to see the VIX surge into the elections, one chart in particular should provide a warning…
An Indicator for Market Meltdowns
There’s another volatility measure you should be watching. But it doesn’t get much attention.
This measure tracks the volatility of the VIX itself – the CBOE VIX Volatility Index (VVIX).
VVIX often serves as a leading indicator for the VIX itself. It tips where volatility levels could be heading.
In fact, VVIX warned of the early August flash crash. It jumped to the highest level of the year just before the S&P 500 went on to fall 5% in two trading sessions.
And VVIX is giving us a pattern to monitor… Take a look at the chart below:
VVIX has stayed elevated since the spike higher in early August. And since September, it’s begun making a triangle pattern, marked by the trendlines.
When a triangle pattern forms, you can imagine pressure building… So it’s important to watch for breakouts amid the coiling action…
Right now, the upper dashed line on the chart gives us a key level to watch. A breakout over that trendline would signal more volatility on the way.
So keep a close eye on VVIX.
A jump above the 120 level would warn that election-cycle volatility is arriving right on time…
Regards,
Larry Benedict
Editor, Trading With Larry Benedict