Remember that old movie, “The Postman Always Rings Twice,” with Lana Turner? The volatility gauge, the VIX, is a lot like that – it always spikes twice.
It did the first time back in December when it topped 30, just like I predicted it would.
Now, I’m not telling you this to frighten you or bum you out. Far from it, in fact. Because, if you’re like me, the prospect of a spike in volatility is downright exciting. After all, it doesn’t matter how volatile the market gets, or if stocks go up or down – that they move is the important thing.
I’m telling you this because there’s one very simple move to make – one that some of Wall Street’s savviest, smartest players are making at this very moment – to get ready for that second big spike and a tenaciously bearish market.
Here’s the play…
This Might Be the Easiest Prediction I’ve Ever Made
Ok, so you don’t exactly need a crystal ball to predict more volatility.
Not only do the charts show it coming, but anyone who hasn’t spent the past two months straight asleep can see the market’s walking on eggshells right now.
Earnings coming up amid hints of an economic slowdown… China’s sinking PMI numbers… a three-week-and-counting U.S. government shutdown… Those are just this week’s big worries. We don’t need to get into the rest, but anyone can see this is a market just waiting for a big spike in the VIX.
It doesn’t really matter what the specific worries are. I’ve seen this double-spike happen time and time again: a big initial spike, a drifting motion lower as complacency sets back in, and then – BANG! – the second spike.
So what happens after that second spike?
Well, we won’t be returning to easy, breezy daily 500-point rallies – that much is clear. This is going to be a rough market for the foreseeable future
That said, we may see a short-term relief rally, spurred on by millions of investors seeing their favorite stocks on sale. But those buying rallies will be followed by more dips… because different investors are going to sell into that strength for as much as they possibly can.
Can’t say I blame ’em. Who doesn’t like profit?
But this particular buying and selling behavior is going to bring us lower lows and lower highs for quite a while in 2019. I don’t see a sustained, long-term rally unfolding anytime soon.
It’s an easy prediction to make, and it’s a very easy pattern to identify, but it can be hard to swallow, especially if you’re just holding stocks. It’s going to be a tough market for you. This is not a good time to be brave with stocks; it’s a time to go with the flow. Right now, that flow just happens to be “down.”
And that’s exactly why I’m sharing this “pro” pick with you today, so you can get in, get set, and get ready to not only protect your positions and your money, but actually make a nice chunk of change when volatility moves.
Here’s the Perfect Hedge for This Market
Not only do the best (read: richest) investors on Wall Street make this move, I recommend it to all my paid-up subscribers, too. If you’re a subscriber or you’ve been following me here for a while, you know I love that data – I crunch the numbers so no one else has to.
We use a data-driven system that not only delivers us “perfect” winning months like we had just last October, but that takes the all-too-expensive emotion and guesswork out of life in rough markets.
When I consider the market, the trend, the numbers – everything – the situation screams for a powerful hedge, like the ProShares Ultra S&P 500 ETF (NYSEArca: SSO).
It’s a leveraged ETF that will get you twice the daily performance of the S&P 500, which, at the moment, is down.
So you’re not going to buy and hold this one – not just yet.
The thing to do is trade puts on this ETF. Specifically, at- or just-outside-the-money puts expiring a month or so today, which would place you in the Feb. 8 or Feb. 15 series.
That should see you paid handsomely – very handsomely – every single time the market takes a dive. And should the market recover eventually to make easy new highs, consider going long SSO – but not before you hear from me.
— Chris Johnson
Source: Money Morning