Fear may be about to return to the market.

Not only are the major indices technically overbought, but the Volatility Index (VIX) has also become far too complacent. If you take a look at a three-year chart of the VIX, you can see that every time it dipped below 17 (a sign of too much calm in the market) it would push higher shortly after. Most times, a pop in the VIX would lead to a pullback in the major indices. 

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At 14.23, the VIX is now eerily calm, as the major indices become aggressively overbought.  That tells us it’s time to protect ourselves from the potential downside in the markets. In fact, we’d rather be set up for a potential pullback, than have no safety net at all.  

That being said, investors may want to protect for potential downside, with short positions, put options, and even inverse ETFs on the Dow Jones, NASDAQ, and S&P 500.


Ian Cooper