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This Sentiment Signal Is Solid And Says We Could Soar Short-Term

Late yesterday afternoon, I sent out a quick update to our EarningsBeats.com members, suggesting that we could see a sudden surge higher in equities. A bullish signal emerged in the Volatility Index ($VIX), one that doesn’t appear very often. Typically, the S&P 500 and VIX move inversely to one another, but when they move in the same direction for a period of time, it can be a solid indication of an impending reversal in the S&P 500. Yesterday’s positive correlation between the S&P 500 and VIX was an indication (not guarantee, of course) that a reversal of the recent downtrend was much more likely:

There have only been 3 times in 3 years where the correlation coefficient turned positive by 0.25 or higher. The first signal of that magnitude was received in early-September 2020 and was identified and published right here in my Trading Places blog at that time. You can check out that article HERE. That signal was bearish, because the VIX and S&P 500 were moving higher together. I interpret that to mean that, as the S&P 500 kept advancing, fear was growing. All it took was a stumble and the bears quickly gained control. The second signal occurred in November 2021, just as money began rotating more defensively. That signal proved quite useful as well. Now we have the opposite. The S&P 500 finished December and began January on a sour note. But the VIX is declining, suggesting that fear is dissipating. In this case, any bullish news could quickly put the bulls in charge. It may be temporary, however, so stay tuned.

And the best way to stay tuned is to join me for MarketVision 2023, which starts at 9am ET tomorrow morning. David Keller, Julius de Kempenaer, and Grayson Roze will join me to share our current views and our outlooks for 2023. It’s been a rough year, but let us help you navigate the uncertain path ahead. CLICK HERE to register with your name and email address and check out the agenda while you’re there. This is a FREE virtual event – there’s nothing else like it – and there is no credit card required. This is your last chance to register, so I hope you decide to join me and Dave, Julius, and Grayson!

Happy trading!

Tom

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