This One Chart Could Predict the Next Market Meltdown

The Volatility Index or VIX is the fear gauge of the market, and now its low.

As tensions begin to rise globally with the United States entering the war between Isreal and Iran, it seems only a matter for time before we see a spike in the volatility index.

In previous posts, I outlined a trading strategy that I felt would work when Trump won the presidency for his second term.

It involved watch the volatility index and waiting for a spike towards 40 or above, as this could signal a fade opportunity.

This strategy remains valid, especially if you managed to buy the recent dip back on April 7^th.

Just a quick refresher for those that may have seen my previous posts and for those who have not.

The VIX measures the implied volatility on S&P500 options, essentially pricing in investor fear.

When markets panic, the VIX spikes and it does it at a rapid pace.

Historically when the VIX breaks above 40, which I would consider an extreme, panic tends to fade offering reversal opportunities on most risk assets.

The United States bombed nuclear facilities in Iran and Iran are yet to respond.

Many think that Iran will not respond and that will only threaten a response, with one being shutting down the Strait of Hormuz, which Iran control. Shutting down this could impact global oil flows.

Another risk is Iran targeting US citizens or US military based in Iran. That threat has been aired across Iran’s news and could trigger bigger implications if followed through.

Tying to call the top in a market is never a clever idea.

In my experience it’s better to fade a move than to try and catch it when its unfolding.

Looking at previous examples most recently April 7th after Trumps Liberation day tariffs, the market sold off agressively and the VIX rallied above 40. The VIX staying above 40 for a long period of time is highly unlikely which led to a rebound in the stock market.

If the tensions continue to rise and we see a significant retaliation by Iran then we could see a spike in the VIX but this isn’t guaranteed.

So, if and only if the VIX spikes, then I will be looking to fade the move.

While markets remain calm for now, the geopolitical backdrop is anything but. The VIX may be low today, but history shows that fear can return swiftly and violently. Rather than predicting a top, the smarter move is to stay patient and let the volatility come to you. If the VIX surges above 40 amid escalating tensions, that could offer a tactical opportunity to fade the panic, just as it has in the past.