The most important investing lesson I’ve learned can be summarized by Berkshire Hathaway Chairman Warren Buffett’s old adage:
Be fearful when others are greedy and greedy when others are fearful.
This couldn’t be more true today.
Huge gains are made by investing when market sentiment is at an extreme low.
One way to measure sentiment is by paying attention to the Volatility of Volatility Index (VVIX).
The VVIX is a measure of the volatility of the S&P 500 Index. It indicates how fast market sentiment changes.
Historically, this indicator has provided strong buy signals, and those that followed were rewarded handsomely.
The chart below shows the relationship between the VVIX (white line) and S&P 500 Index (blue line):
When the VVIX Spikes and Then Begins Falling the S&P 500 Index Rallies
(Source: Bloomberg)
This is a pattern that repeats itself time and time again.
Recently, we witnessed the COVID-19 sell-off that occurred at an unprecedented rate.
In about a month, the S&P 500 Index fell by 35%, and the media was calling for more losses.
During this time, the VVIX spiked 119% — reaching its highest level ever. Market sentiment had hit rock bottom.
Exactly one week after the VVIX peaked, a new bull market was born.
Investors who capitalized on this buy signal have already made huge profits.
The S&P 500 Index is up 38% since March 23. And according to the VVIX, it looks like there are more gains ahead.
Count on the VVIX Indicator During Market Chaos
This isn’t the first time this has happened in recent memory.
The same thing occurred in 2018.
Investors who bought the market bottom when the VVIX began to fall made great gains. After a year, the S&P 500 Index had increased by 37%.
As you can see, market sentiment is important. That’s why it’s one of the many indicators Ian King and I follow in our Automatic Fortunes service to determine the best profit opportunities for our readers.
Regards,
Research Analyst, Automatic Fortunes
