Will These Three Numbers Predict Where the Market Goes From Here?
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During market volatility, you have to keep your cool. There is an indicator out there that will help you. There are three numbers to watch that can help you decide whether it’s time to get defensive or go shopping!
I’m talking about the CBOE Volatility Index (VIX)…
The VIX, or “fear gauge,” corresponds to the number of put and call options being bought on S&P 500 stocks by way of the index. If more puts than calls are being bought, then the gauge is pointing to a lower market, and if more calls than puts are being bought, then it’s pointing to a higher market.
So how do you measure this?
Well, this is how…
When the VIX is trading between 10 and 20, the bulls are in charge – and you should be safe if you are buying.
If the VIX goes over 27 (based on the current market), then you need to pay attention. So the critical level right now is between 20 and 27 – that’s when it’s flashing yellow.
If the VIX breaks 27 and closes over 30, you are probably in for a wild ride and the fear gauge is now kicking in for real.
During the worst crashes in market history, the VIX has traded as high as 80. So anytime it goes over 30, it’s time to start scaling in to your favorite picks. Start slow and add more when the VIX is at 40 and 50. At 60 or higher, back up the truck.
Fear spikes the market, but the fear quickly dissipates and greed takes over. The VIX rarely remains elevated for more than a few days or weeks, and it’s during this time that you want to be greedy.
Action Plan: In The War Room, I monitor the VIX like a hawk. And in tomorrow’s Trade of the Day, I’ll give you a list of how to be prepared at all times.
Join me and Bryan live for the War Room Open House next week. You’ll get a chance to make plays based on things like the VIX and many other indicators in REAL TIME – FOR FREE!