Note from Louis Basenese: Two weeks ago, my friend and colleague, Karim Rahemtulla, shared a “perfect” way to trade to increasing volatility in the market. DailyWealth’s Steve Sjuggerud has an equally compelling opportunity, which I want to share with you today. Enjoy!
I have some good news for you today…
I have a little ray of sunshine in all this darkness lately: You could make A LOT OF money in the next three months… based on history.
Let me explain…
This recent stock market volatility – down 400 points one day, up 400 the next, then down again – has certainly rattled your nerves (not to mention your portfolio).
This kind of recent volatility… especially on the heels of similar volatility in 2008 and 2009… is enough to scare off even the toughest investor.
The good news is, volatility has finally reached a high enough level where history shows you can make big money from it…
The Volatility Index (the “VIX”) just hit 44 as I write. The VIX is the stock market’s “fear gauge.” The lower the VIX is, the higher investor complacency is, and vice versa. This chart shows what happens to stock prices after the VIX hits 44. You can see that stocks tend to “V” bottom and then soar:
The old phrase is: “When the VIX is high, it’s time to buy.” Well, we tested it and it’s true…
Specifically, we tested how the stock market performed once the VIX hit 44 and then fell below it.
The results were quite impressive… Three months later, stocks were up 80% of the time, and the median return in the S&P 500 was 9%.
I realize 9% might not sound like much to you, but remember, that’s just three months. Annualized, that’s 36% returns… and it’s as good as any system around.
Granted, we don’t have a lot of history to draw from. Twenty-five years might sound like a lot of data, but we haven’t had to deal with this kind of volatility that much in our lifetimes (fortunately).
Based on our quick number crunching, it sure looks like:
You want to own stocks for three months after the VIX soars to current levels and THEN goes below current levels.
Based on recent history, there’s a high chance you’ll make large gains.
Volatility will certainly settle down at some point. And as it does, it pays to buy stocks.
In short, history tells us that, as volatility settles down, you make REAL MONEY in stocks. Trade accordingly!