Why It's Risky Holding S&P500 Stocks Right Now [VIX]
Those who follow my ideas know that I am a big proponent of the VIX and how as a trader it tells me what the general "temperature" of the stock market is at a given time.
Currently, when looking at the chart and how I have set it up, we can see different areas and levels in relation to risk.
If we start with the upper levels, this is a level where SPY is extremely volatile, and looking for longs, OR shorts, is very risky as the nature of the market can literally do anything in any direction.
Just below that area we have 2 levels. One in which we are primarily looking to short stocks, and the level just above that were shorting then begins to become risky. However, if you are in any shorts or put options, this area is also very wise to take profit.
Meanwhile on the opposite end of the spectrum at the bottom we have a similar situation as the top where it is risky to be in any longs or shorts as the direction of price action could be a coin flip. But just above that we have 2 levels again.. one in which it is least risky to buy and hold stocks. It is actually the optimum level to buy stocks and hold them. This is the area where the MAJORITY of stock traders like to live. This is also the area where the majority of traders get stuck in as they confuse this level with all the levels just assuming that markets only ever go up when that is not true. There are ebbs and flows and the S&P500 volatility index beautifully illustrates that.
The best buy opportunities for the medium to long term come at this buy and hold level. This is the time where the markets are in full bull mode. It is the time where any and every stock will probably go up in price tomorrow if you bought it today. This then leads us to the next level just below that at our other take profit area. This is an area where there is EXTREME euphoria and is very dangerous to be trying to buy and hold stocks. This will be the area where smart money would be taking profits and re-weighting their portfolios.
Those are the 2 polar ends of the S&P500 volatility. So now that only leaves one level left. That level is the level we currently find ourselves at. And that is the middle range colored in blue. This is the area where it is basically neutral and the market at any time or any given moment can flip very bearish OR very bullish. I would not go as far to call it a coin flip as the volatilty at this level is relatively manageable. Which is why I personally believe that where the market is currently is NOT for retail stock traders. This is an area where if one is new to trading should be VERY careful as this, according to the chart I have outlined here, is a TRADE ONLY zone. This is NOT the area to be buying stocks with the assumptions that in the next month they are going to go up. This is a very risky area to hold either longs or shorts for extended period of times.
This is however a PERFECT area if you want to trade. The saying goes dont hate it, dont date it, just TRADE it. If you are a new trader and you are reading this and you have stocks that you are already mentally married to please take this as a warning that right now there may not be a good long term entry at the immediate moment. BUT, if you are new to trading and you must absolutely "go ape" on a stock that you love long term, try buying light positions in it slowly until the VIX returns to more optimum lower levels of volatility.
I hope this idea will help those who feel either unsure or frustrated about the state of the markets right now. 50% seem bullish and 50% seem bearish and that in and of itself is a manifestation of the nature of my blue trade zone that I have labeled. NOBODY knows which way it will go until the charts tell us. So in the meantime, I will continue to primarily trade this market only.
Currently, when looking at the chart and how I have set it up, we can see different areas and levels in relation to risk.
If we start with the upper levels, this is a level where SPY is extremely volatile, and looking for longs, OR shorts, is very risky as the nature of the market can literally do anything in any direction.
Just below that area we have 2 levels. One in which we are primarily looking to short stocks, and the level just above that were shorting then begins to become risky. However, if you are in any shorts or put options, this area is also very wise to take profit.
Meanwhile on the opposite end of the spectrum at the bottom we have a similar situation as the top where it is risky to be in any longs or shorts as the direction of price action could be a coin flip. But just above that we have 2 levels again.. one in which it is least risky to buy and hold stocks. It is actually the optimum level to buy stocks and hold them. This is the area where the MAJORITY of stock traders like to live. This is also the area where the majority of traders get stuck in as they confuse this level with all the levels just assuming that markets only ever go up when that is not true. There are ebbs and flows and the S&P500 volatility index beautifully illustrates that.
The best buy opportunities for the medium to long term come at this buy and hold level. This is the time where the markets are in full bull mode. It is the time where any and every stock will probably go up in price tomorrow if you bought it today. This then leads us to the next level just below that at our other take profit area. This is an area where there is EXTREME euphoria and is very dangerous to be trying to buy and hold stocks. This will be the area where smart money would be taking profits and re-weighting their portfolios.
Those are the 2 polar ends of the S&P500 volatility. So now that only leaves one level left. That level is the level we currently find ourselves at. And that is the middle range colored in blue. This is the area where it is basically neutral and the market at any time or any given moment can flip very bearish OR very bullish. I would not go as far to call it a coin flip as the volatilty at this level is relatively manageable. Which is why I personally believe that where the market is currently is NOT for retail stock traders. This is an area where if one is new to trading should be VERY careful as this, according to the chart I have outlined here, is a TRADE ONLY zone. This is NOT the area to be buying stocks with the assumptions that in the next month they are going to go up. This is a very risky area to hold either longs or shorts for extended period of times.
This is however a PERFECT area if you want to trade. The saying goes dont hate it, dont date it, just TRADE it. If you are a new trader and you are reading this and you have stocks that you are already mentally married to please take this as a warning that right now there may not be a good long term entry at the immediate moment. BUT, if you are new to trading and you must absolutely "go ape" on a stock that you love long term, try buying light positions in it slowly until the VIX returns to more optimum lower levels of volatility.
I hope this idea will help those who feel either unsure or frustrated about the state of the markets right now. 50% seem bullish and 50% seem bearish and that in and of itself is a manifestation of the nature of my blue trade zone that I have labeled. NOBODY knows which way it will go until the charts tell us. So in the meantime, I will continue to primarily trade this market only.
