Be Sure To Pay Attention To Sentiment Signals

When the Volatility Index ($VIX) moves in lockstep with the S&P 500 for a period of time, you need to be prepared for a sudden price reversal in the S&P 500.

This positive correlation doesn't happen often, but here's a very quick report that I sent out to our EarningsBeats.com members last Thursday, literally just before the S&P 500's 5% climb in 5 days:

"We rarely see the S&P 500 and Volatility Index ($VIX) trending in the same direction. Typically, the S&P 500 rises and the VIX falls. Or the S&P 500 falls and elevated fear sends the VIX higher. When the daily correlation coefficient turns positive, it means that these two are trending in similar directions and that USUALLY means we should be watching for a direction change in the S&P 500. Because it's been trending lower, I believe we could see a sudden move higher in the S&P 500. These signals are certainly not a guarantee and do not work 100% of the time. But they're a solid-enough indicator to share this with you. Check out this 3-year chart to review prior instances and how they resolved:

Enter Volatility Index ($VIX):

The reversal, if it occurs, doesn't always happen immediately, but I'd be very careful on the short side. Personally, I've taken on a bit more risk with leveraged ETFs."

Please join me tomorrow, Saturday, January 14th, to explore the EarningsBeats.com research, guidance, and education platform. It only requires a 30-day FREE trial to our service and our VIX signal last week would have easily covered the cost of an annual membership.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.