{"id":19145,"date":"2021-11-15T07:30:07","date_gmt":"2021-11-15T12:30:07","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19145"},"modified":"2021-11-15T07:30:07","modified_gmt":"2021-11-15T12:30:07","slug":"heres-why-im-not-trading-the-new-buy-signal","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/heres-why-im-not-trading-the-new-buy-signal\/","title":{"rendered":"Here\u2019s Why I\u2019m Not Trading the New Buy Signal"},"content":{"rendered":"

The Volatility Index (VIX)<\/a> generated a new broad stock market buy signal last Thursday.<\/p>\n

But, I’m not buying it – because the “crystal ball” says to sell.<\/p>\n

Let me explain…<\/p>\n

The VIX closed above its upper Bollinger Band (BB)<\/a> last Wednesday. Then, the VIX closed back inside the Bollinger Bands on Thursday.<\/p>\n

Long-time readers know that’s a VIX buy signal. And VIX buy signals have paid off really well this year.<\/p>\n

Just take a look at how the S&P 500 performed following the seven previous buy signals in 2021 (blue arrows)…<\/p>\n

\"Chart\"<\/div>\n

In every case, the stock market moved higher right away following the VIX buy signal. And, in six of the seven cases, the market was higher one month later.<\/p>\n

So, if we’re playing the odds, we have to side with the bulls<\/a> on this one.<\/p>\n

Thursday’s VIX buy signal should immediately lead to a higher stock market. The market should also be higher one month from now.<\/p>\n

The problem, though, is that VIX option prices are telling us a different story. VIX call options<\/a> are far more expensive than the equivalent VIX put options<\/a>.<\/p>\n

When we’ve seen this condition before, it has almost always led to a higher VIX in the days ahead. And a higher VIX usually goes along with a falling stock market.<\/p>\n

This indicator is so accurate that we’ve often referred to the discrepancy in VIX option prices as the stock market’s “crystal ball.” Right now, the crystal ball is bearish<\/a>.<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The VIX traded down to $16.35 on Friday. At the time, the VIX November 17 $17 calls – which were $0.65 out of the money – were trading for $1.00. The VIX November 17 $17 puts – which were in the money by $0.65 – were trading for $0.50.<\/p>\n

In other words, traders were willing to pay twice the price to bet on a higher VIX two days from now, than on a lower VIX.<\/p>\n

The discrepancy is even larger if we go out one month… The VIX December 8 $17 calls were trading for $3.35, while the equivalent put options were $0.60.<\/p>\n

It’s hard to argue with the VIX buy signal. It has been a highly reliable indicator all year.<\/p>\n

But it’s even harder to argue with the crystal ball, which has been even more reliable.<\/p>\n

In this situation, traders are probably better off not picking a side. We don’t have to trade every signal.<\/p>\n

So, when two reliable indicators are conflicted, maybe we’re better off taking a pass on the trade.<\/p>\n

Best regards and good trading,<\/p>\n

\"signature\"<\/p>\n

Jeff Clark<\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

Are you going to pass on a trade due to the conflicting indicators? Do you find that the \u201ccrystal ball\u201d has been a reliable indicator in the past?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

We might have to side with the bulls…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-19145","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19145","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19145"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19145\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19145"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19145"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19145"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19145"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19145"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19145"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19145"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}