A key market indicator suggests that investors should “sell” here as things could get worse in the coming days, says Josh Brown – the CEO of Ritholtz Wealth Management.
Here’s what the history tells us
Brown’s view is primarily based on “VIX” or the CBOE Volatility Index that returned to “20” on Friday for the 5th time this year.
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In each of the previous four times, he recalled this afternoon on CNBC’s “Halftime Report”, a reading that low sparked a sell-off in the equities market.
That [playbook] has served you very well. If you’ve used that lack of volatility as your governor – am I too long? Am I too eager for the upside? That is exactly the moment [to sell].
It is also noteworthy that the S&P 500 failed to break above its 200-day Moving Average at just over 4,050 level. That in itself suggests upside exhaustion.
Investors are waiting for more clarity
U.S. stocks are keeping in the red this week after the “fear index” hit a low on Friday. So, the history does indeed seem to be repeating itself.
Part of it may be related to investors wanting to wait for more clarity, expected after the CPI print on December 13th and the FOMC meeting a day after. Brown added:
There’s a story of resilience, there’s also a story of it might be too early to celebrate. Stocks are appropriately in the middle of that tug of war. We’re not taking off to the upside, but you have some bounces off the lows.
Fed Chair Jerome Powell is also scheduled for a speech this Wednesday.
According to Josh Brown, investors should return to equities and look for opportunities to buy once the “VIX” is back in the high 20s.
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