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<\/p>\nThere’s an old saying on Wall Street…<\/p>\n
“When the VIX is high, it’s time to buy. When the VIX is low, it’s time to go.”<\/p>\n
Last Friday, the Volatility Index (VIX) closed at its lowest level since January 2022. In other words, it’s time to go as we head toward the end of April.<\/p>\n
The VIX is commonly referred to as Wall Street’s fear gauge. It measures the premium traders will pay for protective options.<\/p>\n
So, when the market is selling off and panicking traders are willing to pay whatever it takes to protect their portfolios – the VIX spikes higher. History has proven that’s usually a good time to buy stocks.<\/p>\n
On the other hand, when the market is rallying and complacent investors are not concerned about insuring their portfolios – the VIX tends to fall. And a low VIX is often a potential warning sign of trouble to come. <\/p>\n
When the VIX drops to its lowest level for the year, that’s usually a good time to sell stocks.<\/p>\n
It’s especially concerning that the VIX is so depressed just as we’re entering the worst six months of the year for the stock market.<\/p>\n
Stocks tend to perform poorly between May and November.<\/p>\n
For proof, we don’t need to look any further back than last year – when the S&P 500 traded at 4300 in early May and was at 3600 by mid-October.<\/p>\n
It wasn’t a straight shot lower, of course. Nimble traders could have dodged in and out of the market and avoided much of the carnage.<\/p>\n
And I’m sure if we dig deep enough, we might even find some years where stocks actually rallied between May and November.<\/p>\n
But most traders will probably sleep easier if they stay out of the market during the worst six months of the year… especially when the VIX is low.<\/p>\n
Take a look at this chart of the VIX…<\/p>\n
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The red arrows point to each time the VIX dipped below 20 over the past 16 months. The blue arrows point to each time the VIX rallied above 30.<\/p>\n
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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<\/p><\/div>\n<\/div>\n <\/p>\n Here’s how the S&P 500 behaved during the same period…<\/p>\n <\/p>\n The signals weren’t perfect.<\/p>\n For example, the S&P 500 often declined for a few more days immediately following the blue arrows.<\/p>\n But generally, whenever the VIX popped above 30 – it was a good time to buy stocks.<\/p>\n However, the red arrows were quite accurate…<\/p>\n Whenever the VIX dropped below 20, the S&P declined almost immediately after. Of course, the most recent action is an exception.<\/p>\n At the end of March, the VIX first dipped below 20. But the S&P 500 has managed to push slightly higher since then.<\/p>\n Only time will tell if this is a failed signal, or if the decline is merely delayed.<\/p>\n But based on the history of this indicator – and with the calendar heading into May – investors should be extra careful here.<\/p>\n The odds favor a move lower.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n <\/p>\n![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202304\/20230418-JMU-02_nrj413.png\")
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