Keep an eye on the stretched Volatility Index (VIX).
It’s now at its second highest point over the last year. It’s also stretched on RSI, MACD and Williams’ %R. Also, historically, when the VIX gets this hot and stretched, it will reverse and pivot not long after. And when it does pivot, you want to be positioned in calls on major indices.
If you look at the VIX dating back to early 2022, you can see that with every spike, RSI, MACD and Williams’ %R tell us when the VIX is likely to pivot lower. We saw that happen in December 2024, August 2024, April 2024, October 2023, March 2023, October 2022, September 2022, and also in May 2022. Each time the VIX peaked with those three indicators, buying calls on the DIAs, QQQs and the SPY typically paid off well.
In addition, we have to consider the Dow Jones is severely oversold at its 200-day moving average. It’s also over-extended on RSI, MACD, Williams’ %R, and Full Stochastics. While we may not see a massive move higher just yet with inflation, tariff and recessionary concerns, the Dow is overdue for a brief recovery.
As we’re all aware, markets get far too crazed.
Rattled investors run to the exits. Fear takes center stage. And rational thinking goes out the window. And we can see all of that tension when the Volatility Index explodes higher.
The best part – when volatility gets too hot, we can take advantage of that, too by playing the short side of Volatility. Again, we can always pick up call options or buy into ETFs such as the DIA, QQQ and SPY, but we can also use ETFs that capitalize on pullbacks the VIX.
Some of the top ETFs to consider when that happens include:
ProShares Short VIX Short-Term Futures ETF (SYM: SVXY), which seeks daily investment results, before fees and expenses, that correspond to one-half the inverse (-0.5x) of the daily performance of the S&P 500 VIX Short-Term Futures Index, as noted by ProShares.com. It also has an expense ratio of 0.95%.
-1x Short VIX Futures ETF (SYM: SVIX), is an inverse VIX-linked ETF that seeks to provide daily investment results, before fees and expenses, that correspond generally to the Short VIX Futures Index, as noted by VolatilityShares.com. As the VIX drops, the SVIX ETF rises.
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