Wanting to Short Stocks? [CAUTION]
A time like this is when it is most interesting to look at charts that serve as indicators to the broader market.. such as the good ol VIX as we see here on the chart.
The VIX, which quantifies the volatility level of the S&P500 on a chart, has been a beautiful gauge on the overall markets temperature on being short heavily one way vs being long heavily the other.
When I first introduced this chart almost a year ago now on August 1st, I pointed out how traders on average just believe that buying and holding good stocks are a good idea ALL the time.. this chart shows there are periods where this is simply not the case.
There are downturns which can last way longer than an average trader's ability to remain solvent and this will always be the case.
So, with that being said, in my previous introduction of this the VIX was showing that we were in a trader's market. This was the time last year when people were still fairly optimistic about stocks due to the tremendous and seemingly invincible growth of tech companies over the last decade. The VIX, however, was showing that this was not an ideal time to be a holder in this market but more so a trader. Meaning trade quick swings and get out.
Fast forward, and notice from August of that time last year to now, there has been an overall trend going upward into our area of highest volatility. The overall trend for weeks and months were illustrating an upward and impending trend into a period of high volatility.
And today, according to this current weekly candle that closes tomorrow, we are seeing that the volatility is in an area where volume-based selling usually declines.
The signal to confirm this would be multiple weekly candles closing back below our take profit area for shorts and ultimately back into our trade zone that we were in last year.
And that last paragraph may just be the most important paragraph in this entire post.
At MINIMUM, 2 things must occur:
1. The trend on the chart must be broken on the weekly.
2. The VIX must break back into the Trade zone.
Only then can we begin to get "optimistic" about stocks becoming bullish again.
In the meantime, the volatility chart is now showing that we are in all time high territory. In order for the price to continue going down in a way that makes it actually profitable for a short seller, the bears will have to move mountains.
This does not mean that prices cannot go further down in the immediate short term. It does mean however that we are close to a peak in market volatility according to this charts overall history.
Keep in mind that this is also not a signal to start longing either. The volatility is still in very high areas and you roll the dice as a gambler would when jumping in choppy waters such as these.
This is a time for smart short sellers to take profit after seeing this setup months ago. New shorts would only be providing exit liquidity so be careful.
In all, keep an eye on this and lets see if in the coming months the volatility dies off and things become somewhat boring until the 4th quarter rolls around. If this happens, a move back into our golden buy and hold zone could be on the horizon!
The VIX, which quantifies the volatility level of the S&P500 on a chart, has been a beautiful gauge on the overall markets temperature on being short heavily one way vs being long heavily the other.
When I first introduced this chart almost a year ago now on August 1st, I pointed out how traders on average just believe that buying and holding good stocks are a good idea ALL the time.. this chart shows there are periods where this is simply not the case.
There are downturns which can last way longer than an average trader's ability to remain solvent and this will always be the case.
So, with that being said, in my previous introduction of this the VIX was showing that we were in a trader's market. This was the time last year when people were still fairly optimistic about stocks due to the tremendous and seemingly invincible growth of tech companies over the last decade. The VIX, however, was showing that this was not an ideal time to be a holder in this market but more so a trader. Meaning trade quick swings and get out.
Fast forward, and notice from August of that time last year to now, there has been an overall trend going upward into our area of highest volatility. The overall trend for weeks and months were illustrating an upward and impending trend into a period of high volatility.
And today, according to this current weekly candle that closes tomorrow, we are seeing that the volatility is in an area where volume-based selling usually declines.
The signal to confirm this would be multiple weekly candles closing back below our take profit area for shorts and ultimately back into our trade zone that we were in last year.
And that last paragraph may just be the most important paragraph in this entire post.
At MINIMUM, 2 things must occur:
1. The trend on the chart must be broken on the weekly.
2. The VIX must break back into the Trade zone.
Only then can we begin to get "optimistic" about stocks becoming bullish again.
In the meantime, the volatility chart is now showing that we are in all time high territory. In order for the price to continue going down in a way that makes it actually profitable for a short seller, the bears will have to move mountains.
This does not mean that prices cannot go further down in the immediate short term. It does mean however that we are close to a peak in market volatility according to this charts overall history.
Keep in mind that this is also not a signal to start longing either. The volatility is still in very high areas and you roll the dice as a gambler would when jumping in choppy waters such as these.
This is a time for smart short sellers to take profit after seeing this setup months ago. New shorts would only be providing exit liquidity so be careful.
In all, keep an eye on this and lets see if in the coming months the volatility dies off and things become somewhat boring until the 4th quarter rolls around. If this happens, a move back into our golden buy and hold zone could be on the horizon!
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