But before we get too bearish, let\u2019s keep an eye on the Volatility Index (VIX)\u2026<\/p>\n
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The VIX closed above its upper Bollinger Band<\/a> yesterday. As you may recall from an essay I wrote earlier this month<\/a>, when the VIX closes back inside the bands, it will generate a new buy signal for the broad stock market.<\/p>\n The blue circles on the chart show the eight previous VIX buy signals since the start of 2017. Each signal marked at least a short-term bottom for stock prices. The S&P 500 moved higher every single time.<\/p>\n We got the first buy signal on 2018 on January 19. The S&P 500 then gained 80 points over the next five trading sessions.<\/p>\n So, as much as I\u2019d like to tell you definitively that the market has reached the exhaustion phase of the recent rally, and now it\u2019s time to get aggressive with short positions \u2013 I can\u2019t do that. The market isn\u2019t going to make it that easy.<\/p>\n Instead, here\u2019s what I think is the more likely scenario\u2026<\/p>\n The VIX may spike slightly higher over the next day or two as the S&P 500 tests the support of its 5-day exponential moving average<\/a> (EMA) \u2013 which has been its primary support line all month \u2013 at about 2847. If that level doesn\u2019t hold, then look for a decline to the 9-day EMA at about 2830.<\/p>\n At that point, the short-term technical conditions should be oversold enough to help fuel a modest bounce. That\u2019s when the VIX will likely close back inside its Bollinger Bands and generate another buy signal. And that\u2019s when we should see another few days of strength and maybe a rally back up near last Friday\u2019s high.<\/p>\n Traders can then look for overbought and\/or diverging technical conditions as a chance to get more aggressive on short positions in anticipation of a move lower over the next several weeks.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n Today, a note from a former option trader\u2026<\/p>\n Have been self-directing my portfolio for about 15 years. Have tried options and, overall, been successful at it. Have used naked puts extensively and covered calls here and there.<\/p>\n But I simply don’t want to trade options anymore. There’s something about it that makes me anxious. I feel exposed to loss the whole time the position is open and the time decay just eats at me.<\/p>\n That being said, I love reading the Market Minute.<\/em> And publishing good, bad, and ugly reader feedback is awesome. Keep up the great work.<\/p>\n \u2013 David M.<\/strong><\/p>\n<\/blockquote>\n And an interesting theory\u2026<\/p>\n Jeff, love your service and your approach. A random thought. As the dollar weakens<\/a>, gold goes up<\/a>. Could it be that some of the fuel for the rise in the S&P is people looking at the S&P as an asset like gold?<\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
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