Editor’s Note: There’s a structural problem with the AI buildout, and it’s built so deeply in the framework that it could paralyze some of the biggest names in AI.
But there’s a 10X convergence set to solve this structural problem and shift the paradigm of the AI market completely, leaving the old guard of AI behind as a crop of newcomers takes their place at the bleeding edge of AI.
And there’s one private company that holds the technology at the core of this 10X convergence, essentially giving it a virtual monopoly on the next era of AI.
That’s why our colleague, tech investing expert Jeff Brown, is sitting down tomorrow evening with Marc Chaikin – developer of the world-famous Power Gauge System. They’ll discuss all the details behind this shift in the AI buildout, as well as help people prepare ahead of the IPO.
You can go here to add your name to the guest list to join them tomorrow, April 29, at 8 p.m. ET.
If you were only looking at volatility right now, you might be tempted to think that everything was fine.
The market’s major volatility gauge, the CBOE S&P500 Volatility Index (VIX), has been tracking below 20. Meaning that expectations for volatility are subdued. On the surface, there’s no sense of worry or panic…
Instead, investors are enjoying the rally off the March 30 lows, with both the Nasdaq and S&P 500 regularly taking out new all-time highs.
But while things might seem calm, some worrying signals are emerging. There are no clear fundamental factors driving the rally, like major earnings and revenue growth upgrades. Nor is there evidence of a fast-expanding economy.
Instead, the market’s been driven by momentum-based buying. The problem comes, however, when that switches the other way…
When volatility is low, buyers feel more comfortable initiating or adding to their existing positions. They get pulled into the momentum trade as other investors pile into the market.
It can all become a self-reinforcing loop. Buyers attract more buyers, pushing the market ever higher.
However, when that momentum suddenly switches – whether from a short-term shock or buyers taking profits in an overstretched market – volatility doesn’t just start trending higher. Instead, it often spikes, setting off a wave of selling as folks start to panic.
And that can feed into another feedback loop. This time, though, suddenly all those investors are simultaneously heading for the exit…
Those funds that bought in based on momentum and low volatility have to start cutting their risk. And that can happen right as liquidity dries up with fewer buyers entering the market. That can exacerbate an already sharp move down.
That’s when markets can go from calm to chaos in a very short time…
That’s even more important right now with events in the Middle East. While markets might ignore $100 oil and rising inflation (and a potential recession) for now… eventually, it will have to deal with reality.
And that’s going to catch a lot of folks off guard…
That’s why the market is so dangerous right now. Folks are equating low volatility with low risk – it’s as if none of the events in the Middle East matter. Nor any of the side effects like embedded higher inflation and potentially higher rates.
But just because volatility is low, it doesn’t mean that risk has disappeared…
It simply means that risk is being mispriced. And when that happens, it leaves the market vulnerable to a sharp adjustment. The problem is that when that occurs, it’s often too late to act.
That’s why it’s important not to get lulled into a false sense of security right now or thinking that the market can go up forever…
So instead of focusing on how calm things appear, you need to pay really close attention to what’s going on beneath the surface. In particular, watch out for any changes in momentum and volatility. Because even a subtle shift can give you forewarning of a reversal.
By the time volatility spikes and the headlines catch up, the move is already underway. And that move can be both unforgiving and brutal.
That’s why right now risk management is so important. You need to remain as disciplined as ever… And constantly be on the lookout for any change in market sentiment. Because that could set off a sharp reversal.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
