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The implications of the technology are profound, and the pace of progress in this space is dizzying. It can be difficult to know where to focus our attention when it seems like every other week, there’s another big breakthrough.
But our colleague, tech expert Jeff Brown, has been one step ahead. He’s been tracking the development of quantum computing for years now.
That’s why he’s hosting a Quantum Flashpoint strategy session next Tuesday, October 21, at 8 p.m. ET.
He’ll cover what lies ahead as quantum technology advances… and the three companies he has his eye on to play the trend.
Just go here to automatically sign up to attend…
Investors thought trade war headlines were in the rearview mirror…
But the past week has served up a reminder that tensions between the largest economies in the world remain… and can still rattle the stock market.
Last week, China announced a series of new restrictions on the export of rare earth materials. The country controls about 90% of the world’s rare earth processing capacity.
Rare earths are used in everything from advanced weapons systems to semiconductors and are critical for the artificial intelligence infrastructure buildout.
President Trump retaliated by threatening a new, additional 100% tariff on Chinese exports to the U.S.
The move sent stock prices crashing lower, with the S&P 500 plunging 2.7% in a single session. It was the worst daily return since April.
There will be plenty of headlines to drive volatility. But to know if the pullback will turn into something much bigger, turn off the news and follow this indicator instead.
The trade war is still ongoing, and stock prices are jumping all around… rallying when it looks as if tensions are easing and dropping sharply on new threats.
But to know if the pullback in the S&P 500 is about to become something much larger, you need to keep an eye on the CBOE Volatility Index (VIX).
VIX reports expected volatility in the S&P 500. It’s a broad measure of volatility across the market and is referred to as Wall Street’s “fear gauge.”
That’s because VIX spikes higher when the S&P 500 is selling off, and it falls when the S&P 500 is rising steadily.
Take a look at the VIX chart over the past year.
During the initial round of the trade war, VIX soared as high as 60 into early April as the S&P 500 fell as much as 21% from the February peak earlier in the year. VIX closed at the highest level since the pandemic in 2020.
While investors were fixated on developments around the trade war, the VIX itself played a major role in the S&P 500’s decline.
You might think that VIX spikes in response to a stock market selloff. But a jump in VIX above key levels can actually become the catalyst for a wave of selling across the stock market.
With an extended period of calm since the April selloff, watch this VIX level for a change that could force sellers to step in.
I recently showed you how VIX levels can drive selling pressure in the stock market.
There’s an estimated $2 trillion in strategies that make buying and selling decisions based on the stock market’s volatility level.
Simply put, these funds sell when volatility is rising. And when VIX starts jumping through key levels, a rush to sell stocks can cause a sudden plunge in the market.
The key VIX level you need to monitor is around 22. Here’s the VIX chart again…
The shaded area shows the 22 level, which has been tested on four occasions since May. Each test has marked the end of a pullback, with the S&P 500 continuing to rally.
A jump in the VIX above 22 could lead to more selling pressure across the market, which drives volatility higher still. That negative feedback loop is a major factor behind sharp market declines in a short amount of time.
So, while trade war headlines are making a return, keep a close watch on the VIX for trouble ahead.
Happy Trading,
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.
