What a week it’s been!
Since last Thursday when the selling began, volatility – as measured by the CBOE Volatility Index (aka the “VIX”) – has rocketed higher, and doesn’t look to calm down anytime soon.
This “fear gauge” began the month at 12.85. But on Monday, it was as high as 53.29. That’s an astronomical increase of 314%!
Of course, most investors were likely caught off guard by both the timing and the magnitude of this surge in volatility. Prior to this move, the VIX hadn’t climbed higher than 24 all year. Investors had been lulled into a false sense of security, brought on by the market’s ability to climb higher despite a torrent of negative news flow.
But the VIX spike shouldn’t have caught you off guard…
I warnrned of the likelihood of this event back on June 24, when I asked “Have You Insured Your Summer?”
And my Cycle 9 Alert subscribers are now holding a position that’s up 80%, thanks to that “nasty” volatility that most buy-and-hold investors fear.
Now, as I’ve said many times before, I do not have a crystal ball. I’m no mystic. And I had no way of knowing for sure that the “insurance policy” I recommended buying at the end of May would indeed pay out. But I didn’t need a crystal ball to know that this time of year is ripe for panic selling and volatility spikes.
Seasonality is just one of the tools I use to guide Cycle 9 Alert subscribers to the best three-month trends at any given time. But in this situation, it proved to be a very valuable tool.
As I shared with you in late June, my research shows that volatility spikes during the summer months of June, July and August occur more frequently, and are of greater magnitude, than year-long averages suggest. In fact, eight of the last 11 summers have brought about a volatility spike greater than 30%. Well… make that nine of the last 12 summers now!
But that doesn’t mean volatility will calm down as soon as the summer is over. September and October are still seasonal weak spots for equity markets. And volatility tends to stay at elevated levels for, on average, the six months following a massive spike.
That means markets are likely to remain rocky through year-end. Click here to learnrn how I’m positioning Cycle 9 Alert subscribers – I just issued a new recommendation today.
Chief Investment Strategist, Dent Research