VIX Rocketed Higher on the Brexit News – What Does This Mean for Us?
My father loved the United States.
I still remember how impressed he was by the scale of the highways, the size of the department stores, the bigness of the cars and houses, the way Americans put three scoops of ice cream on their cones and the size of the burgers at McDonald’s.
My dad just loved that Americans did things in a big way.
The generosity of people, their openness and their good-heartedness also touched my father.
This was early 1980s. It was a moment like we’re having today.
In the 1980s, we had just gone through a horrible period. Oil prices had crushed Americans. Inflation was destroying people’s savings. Communism, socialism and terrorism were life-and-death threats to capitalism, democracy and freedom.
Looking back now, our country was in crisis when my father was visiting. Still, my father saw something in America that struck him then, and even though I was young at the time, it’s something I’ve never forgotten…
You see, my father felt that the essence of America is freedom. Freedom to choose to do things in a big way. Freedom to start a business. Freedom to get rich through the stock market.
I believe it’s why he really wanted to see me come to the United States and be successful. My father died before my success as a hedge fund manager, winning an investment management competition held by the Templeton Foundation for generating returns of 76% during the 2008/2009 financial crisis. He missed seeing me manage a $5 billion fund. And he was gone before I made my bet during 2008 with all my money to become financially independent.
In fact, the stock market remains one of the only ways left in today’s crazy world to get rich in your lifetime. But is now the right time to jump in?
Today, I will examine a key market indicator that can help show whether the market is headed for more losses or if the worst of the selling is over.
The Brexit Bottom
Right now, people are more worried about a stock market crash than seeing it as an opportunity to get rich.
Traders are in a panic about the news that Britain is leaving the European Union — Brexit. Many feel a crash is imminent. That, of course, is possible at any time. We saw it in 2008, and we’ve seen mini-crashes with regularity in 2011, 2012, 2015 and twice already in 2016.
Of course, before jumping into an investment, you want to be aware of the risks of a market crash. And I know many of you will want to know if the Brexit panic is going to lead to the big crash that my colleagues James Dale Davidson and Jeff Opdyke are warning you about.
Now, I’m sure my colleagues have their own way of making this determination.
For me, the way I’ve always judged if a big crash coming is through the use of an early crash warning alert system. I wrote about this early warning crash indicator — the CBOE Market Volatility Index (VIX) — on March 24, showing you how the early crash warning system indicator has worked for every stock market crash in the past.
The VIX is a proxy for the price of this crisis insurance, which are put options on the stock market, that’ll skyrocket when the market crashes.
You see, when the VIX is low and steadily rising, in my experience that’s been a tell that the big money is aware of a hidden risk in the market and is accumulating crisis insurance. That’s a solid sign that things could get ugly very quickly in the market.
But what about today?
Checking the Early Market Crash Warning Alert
On Friday, the VIX rocketed higher on the Brexit news and the sharp pullback in the global market.
However, on Monday, the VIX actually fell, indicating that big money isn’t accumulating crisis insurance for Brexit and that most of the impact of the Brexit event is accounted for in stock moves.
So, for right now at least, the early crash warning alert system is not signaling a market crash.
My interpretation is that most of the time, this kind of sudden spike due to a known event is temporary, and resolves itself in a few days or a couple of weeks. And that’s what it looks like is going to occur for the Brexit event too.
However, I’ll be watching for what’s going on with the VIX just in case it turns out that a true crash is brewing, as well as looking for new investment opportunities within the rising trends within the tech market.
Editor, Profits Unlimited