The Market’s “Fear Gauge” Just Predicted the Next Correction
Catch Me Talking Volatility on Mad Money
Last night, my exclusive volatility analysis was shared on Jim Cramer’s Mad Money.
Now, this isn’t the first time I’ve been featured on CNBC’s financial TV show. I’ve actually come to be known as Mad Money’s resident volatility expert.
When Cramer has a question about volatility, he reaches out to me. And that’s exactly what happened yesterday.
To analyze volatility, I use the CBOE Volatility Index, better known as the VIX.
The VIX is essentially the market’s “fear gauge,” meaning it measures fear in the market.
Typically, when the broader market is rising, the VIX will fall. That means the market is healthy – when stocks are going up, investors aren’t scared. Makes sense, right?
But that’s not what’s happening right now. And to me, that means one thing…
Another correction is coming.
See me break down this volatility storm on Mad Money right here…
The correction we saw begin back on May 10 isn’t over. In fact, this is just the beginning.
Volatility is going to continue to run higher. Today, the VIX sits at 24.83 – and I see it heading to 30 in the next few weeks.
My VIX Traffic Light
Red, yellow, green – we’re taught from an early age what these colors mean on a traffic light.
And it’s just as simple when we’re looking at the VIX.
Today, I want to introduce you to my Volatility Traffic Light – it’s my go-to indicator when I’m looking at the VIX.
When my VIX traffic light is red, that means the VIX – and fear – is likely to drop.
When the light is yellow, that means we’re expecting a strong move in either direction… so we better slow down and get ready.
Green means go – and when the VIX traffic light is green, that means we expect the VIX to plow upward and onward at full speed.
And if you watched me on Mad Money, then you know where my VIX light stands today…
My VIX traffic light is green.
That means fear is rising… and a correction is coming. We aren’t out of the woods just yet, folks – but don’t worry.
Here at Profit Takeover, we’re traders. And just like Wall Street has been doing for years, we’re going to use this bearishness to our advantage. Remember when I taught you how to use puts? That’s exactly the kind of bearish strategy we like to use in a down-trending market.
Because even when the market is red, we still know how to make money.
Just keep an eye on your inbox – every day, I’m bringing you the best profit opportunities the market has to offer, even if we’re plunging into negative territory.
I Spy Impact Money
When a lot of money pours into one trade, that means one thing…
Something big is coming.
We call it unusual options activity – when an unusually large amount of contracts on one option are bought up at once.
The iShares MSCI Taiwan ETF (NYSEARCA:EWT) is down around 1%, at last check, amid concerns about the semiconductor sector — much of which is based in Taiwan.
It looks like an institutional trader may be expecting — or hedging against — more downside over the next few months, opening a 5,000-contract bear put spread on the fund, last seen trading just south of $59.
The trader bought to open September 46-strike puts to gamble on a run south of $46 (which would require a steep drop in EWT shares), but limited their risk and cost of entry by simultaneously buying to open the even deeper OTM September 30-strike puts.
Click To Enlarge
Mark’s Watchlist
1. Verizon Communications Inc. (NYSE:VZ) $56.66 (-0.87%)
Yesterday, we added to our VZ position in the Profit Takeover portfolio after Warren Buffett upped his own stake in the telecom. While the stock is down today, I’m still bullish on this one long-term.
2. Walmart Inc. (NYSE:WMT) $142.33 (+0.33%)
The fall of FAANG has led to the rise of retail – remember? And WMT is cementing its place at the top of the retail food chain. As Amazon’s only real competitor, WMT is a serious retail stock to watch. Especially after the company’s earnings beat yesterday.
3. Nordstrom Inc. (NYSE:JWN) $40.44 (-3.74%)
JWN is a luxury retailer on the rise – that’s why we have a long-term option in our Profit Takeover portfolio right now. JWN has been trending up since May 12, bringing our call option to a 50% gain today… well on its way to an asymmetrical profit.
4. iShares Silver Trust (NYSEARCA:SLV) $25.89 (-0.99%)
When the market falls, assets like gold and silver become safe-havens for investors. And as you saw in my Mad Money segment, the market is heading toward trouble. That means SLV could be headed for another boost soon – which would be good news for our calls.
5. Viacom CBS (Nasdaq:VIAC) $39.58 (-1.46%)
VIAC has been on a ride since we first opened a call in the streaming stock on May 12. Since then, AT&T announced an industry-revolutionizing deal that could pull up the entire streaming sector. As this deal shakes out, I’m keeping a close eye on VIAC – and our open call position, which sits at about breakeven today.
6. American Airlines Group Inc. (Nasdaq:AAL) $23.00 (-2.36%)
With summer fast-approaching and COVID cases quickly diminishing, travel is back. And we’re going to see travel stocks – especially airlines – rise as a result. That’s why AAL has a place on my Watchlist… and in our portfolio.
7. Virgin Galactic Holdings Inc. (NYSE:SPCE): $16.80 (-2.55%)
This stock on my Watchlist is a little bit different on the rest. I see the above six stocks moving up in the long-term – but I’m bearish on SPCE. It’s a junk company as far as I’m concerned, and it’s losing the space race to SpaceX. But SPCE is set to give an update on a crucial test flight this week, earning its stock a spot on my Watchlist.
I’ll keep you updated on all of these stocks – and the future of the VIX – in each of my Profit Takeover issues. Because unlike Wall Street, I’m here to make you money…
And nothing’s off limits.
Until tomorrow,
Mark Sebastian
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May 19 2021
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