At the risk of beating a dead horse, let’s take another look at the Volatility Index (VIX)…

When we looked at this chart last week, we noted how the VIX was, once again, sitting right on its lower Bollinger Band. Previous similar setups often led to an immediate pop higher in volatility and an immediate decline in the broad stock market.

We figured this was a caution sign for stocks heading into last week. And, exercising a little caution last week turned out to be a good thing. The S&P 500 started the week by gapping up to 2817. Then it reversed, and headed lower for five straight days.

At the low of the day on Friday, the S&P was at 2722 – down 95 points from Monday’s high.

Of course, the market bounced a bit off the lows on Friday. And, after two solid rally days this week, the S&P 500 is once again challenging the 2800 level.

But, the VIX is back down to its lower Bollinger Band again. There’s not much room for it to move lower and help fuel a sustainable rally in the broad stock market.

This week’s bounce in the stock market has been stronger than I thought it would be. The S&P recovered almost everything it lost last week. The index has climbed back above its 9-day exponential moving average (EMA) – which shifts the immediate momentum back into the bullish camp.

Any market gains from here, though, while the VIX is in its current condition, are likely to be given back in the days ahead.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, a Delta Report subscriber awaits a current trade…

Your recent recommendation may payoff today. I hope so. However, with this market, it’s so hard to tell as I’m still learning. Thank you for your timely updates, write-ups, and all that you do!

– John

And a Mastermind subscriber talks about paying the price…

I’m glad you don’t get into all that heavy technical analysis (paralysis). I’ve got my hands full with getting better at reading the charts and identifying the trends based on our Mastermind sessions. I’m loving this stuff, but this market is all about a kick in the nuts and eating humble pie.

You’ll get a kick out of this… you warned us that the S&P was getting oversold and to be careful. So of course, I took the other side of the trade…

Anyway, I know I should wait, but I got impatient and paid the price. I’ll get out quickly on Monday if the trade still goes against me, but I’m hoping for a little bad news over the weekend.

– Richard

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com.