An old floor trader told me something important many years ago.
He said: “To know what everyone knows is to know nothing.”
Those words reminded him to keep an open mind. That helped him make money.
Today, I have a chart that shows a different view of volatility. And it’s not bullish.
In fact, it just flashed a huge warning sign for the stock market.
This indicator gave the same exact warning right before stocks plummeted more than 13% in December 2018.
Yet no one seems to be paying attention to it.
Read on to see why that could be a very costly mistake…
What No One Knows About Volatility
The chart below shows the momentum of volatility.
Right now, it’s completing a crossover from bullish (green) to bearish (red) territory.
Volatility Is Turning Bearish
This next chart shows periods when the momentum of volatility was bearish. These are the red boxes.
This Indicator Warned of Previous Sell-Offs
As you can see, previous crossovers generally resulted in weak market returns.
Prepare for a Pullback
Now, this isn’t a perfect indicator. No indicator is right 100% of the time.
But it has predicted significant declines in many cases.
Looking at the momentum of volatility is an example of going beyond what everyone knows.
And right now, the indicator offers a warning.
It’s telling us to expect stocks to sell off sometime in the next couple of weeks.
The stock market may even plunge more than 13%, like it did after this warning sign flashed in October 2018.
That means, despite media headlines about new all-time highs, right now is a terrible time to buy shares.
You can make a lot of money with put options, however.
A put option gives the buyer the right, but not the obligation, to sell a stock at a specified price any time before the option expires. It increases in value when prices fall.
To learn about the powerful options strategy I use in my Peak Velocity Trader service, click here.
Editor, Peak Velocity Trader