A Smarter Way to Use This 'Bulletproof' Rally Indicator

This indicator was wrong just one time in three decades...

It flubbed the 2008 financial crisis. But otherwise, megabank JPMorgan Chase (JPM) says its tool has been a bulletproof predictor of market rallies.

You're probably skeptical. And you should be. My team and I have warned over and over that anyone who claims to predict the market is probably wrong or a liar.

In this case, though, we actually agree with JPMorgan... This indicator is as close to bulletproof as you can get. Except when the entire financial market imploded in 2008, its "buy" signals have been 100% accurate going back to 1990. That's an outstanding track record.

Right now, fear is elevated... And this indicator is once again calling for a market rally. We're sure the smart guys over at JPMorgan are eager to take advantage of this signal.

But here's the thing...

They're using it wrong.

The logic behind the indicator makes sense. It tracks the CBOE Volatility Index ("VIX"), which we also call the market's "fear gauge." When investors panic and send the VIX soaring more than 50% higher than its one-month moving average, the indicator predicts a market rally.

That's in line with our understanding of investor sentiment. Markets tend to do the opposite of what everyone is positioned for. So we're not surprised that JPMorgan's indicator is so successful.

The VIX is our North Star for options trading...

The higher the VIX, the more investors are afraid of the markets falling. And the more they're scared, the more they're willing to pay for options protection. So as option sellers, we prefer to trade when the VIX is high.

There's a problem, though...

Sometimes the VIX spikes because investors are spooked and markets are falling... but the market continues to fall even more.

When this happens, we can still end up with profits if we collect a big enough premium payment. But other times, we may have to dig ourselves out of a hole by rolling our trades.

The JPMorgan indicator pairs a spike in volatility (higher premium payments for us) with extreme lows in investor sentiment (meaning markets should rally).

JPMorgan's VIX indicator has signaled 21 rallies since 1990. In the six months after each time the indicator was triggered, the S&P 500 Index gained an average of 9%. Take a look...

As we mentioned earlier, this indicator flashed a false signal during the 2008 global financial crisis. In that case, the extreme market fear truly was justified, and the S&P 500 was still down 33% six months later.

So outside of our financial system being on the brink of collapse, this indicator is useful at pegging likely market rallies.

The folks at JPMorgan use that signal to buy stocks. And sure, that can work. Like we said, stocks go up an average of 9% in the six months following this signal. That's hardly a bad return.

But we can do better. And that's because instead of betting on stocks, we sell options...

In our Retirement Trader advisory, our strategy gives us maximum profits when folks are scared of stocks falling when they actually go up... or at least hold steady.

So when we look at the JPMorgan indicator, it's screaming that it's time to sell options.

This VIX signal last triggered on January 25. That means markets should finish higher over the six months following that trigger. It also means we're seeing a lot of fear in the market.

Just last week, we booked two more winners for Retirement Trader subscribers with trades we made on timberland company Rayonier (RYN) and trash giant Waste Management (WM).

As option sellers, we're salivating. It's a great time to put our favorite strategy to use.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: This market's wild swings don't have to work against you. Doc's options-selling strategy is designed to help you grow your wealth even in the most volatile markets... so you can profit from the chaos, without taking outsized risks. Once you learn to use it, it has the chance to add hundreds – or even thousands – of dollars to your income every month. Find out how it works here.

Further Reading

"Investors want to make sure they have portfolio protection right now," Jeff Havenstein writes. With all the recent uncertainty in the market, now is the perfect time to take advantage of investor fears by selling "insurance" on stocks... Learn more here: It's Time to Capitalize on the Fear of Nervous Investors.

"This strategy is one of the most misunderstood and misused financial vehicles on Earth," Doc says. But when used correctly, this technique can help you make a killing while decreasing risk... Read more here: How to Earn Low-Risk Income... With a Strategy Born From Mania.

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Options are a great way to play the current market dynamic. And one strategy offers an immediate payout while limiting your risk...

Market Notes


Today's company sells the sugary snacks folks just can't quit...

Longtime readers know companies that sell "addictive" products can rely on steady sales. Selling habit-forming goods like fast food and alcohol ensures that customers keep coming back for more, no matter what the market is doing. Today's company sells comforting sweets that people love...

Hostess Brands (TWNK) is a $3 billion snack maker. It's known best for its famous brands such as Twinkies, Donettes, and CupCakes. But it sells an array of cookies, wafers, cakes, and other sugary temptations. And that variety of sweets has kept customers happy... In its most recent quarter, Hostess posted revenue of more than $297 million – up 16.1% year over year. And the company also raised its full-year 2022 guidance.

As you can see, TWNK shares are in a strong uptrend today. They're up more than 150% from their 2020 lows, and they recently hit an all-time high. As long as folks keep giving in to their sugar cravings, this trend should continue...