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The Best Time to Buy Stocks in Five Months

By Jeff Clark
Tuesday, August 2, 2011

The sky is falling. America, as we know it, is crashing. Thoughts of Armageddon are now mainstream. The world is ending.
 
So let's buy stocks.
 
Huh?
 
Of course it sounds crazy. Who in their right mind buys stocks in this environment? Actually, if you want to make money, you have to buy stocks here.
 
Take a look at this chart of the Volatility Index (the "VIX")...
 
 
The VIX is the stock market's fear gauge. A falling VIX indicates investor complacency. A rising VIX shows fear.
 
As you can see from the recent sharp spike in the chart, investors are scared. They're so scared, in fact, the Volatility Index spiked above its upper Bollinger Band (the blue lines on the chart) last week.
 
Bollinger Bands measure volatility. They indicate the most probable trading range for a stock or index. Whenever a chart trades outside its Bollinger Bands, it indicates an extreme move – a move vulnerable to a sudden and sharp reversal.
 
Last week, the VIX closed above its upper Bollinger Band – indicating an extreme move in investor fear. Of course, we all know the best time to buy stocks is when investors are scared – when they're so frightened of potential losses, they're willing to dump positions at "fire sale" prices.
 
We've seen this movie plenty of times before – twice already this year, in fact – and the ending doesn't change.
 
Take another look at the VIX chart. Notice the spikes in fear that occurred in mid-March and again in mid-June. Each time, the VIX spiked above its upper Bollinger Band. When it fell back inside the Band, the VIX triggered a "buy signal" for the broad stock market. In both cases, the S&P 500 rallied about 75 points in just a couple weeks.
 
The VIX closed above its upper Bollinger Band last week. It fell back inside the Bands yesterday. While there's no guarantee history will repeat and we'll see another strong, short-term rally, I like our odds.
 
Today is the best time to buy stocks since March. So I'm buying stocks here... You should consider doing the same.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Last month, Jeff told Growth Stock Wire readers that gold stocks were "one of the best risk/reward trades in the market." Two weeks later, big gold fund GDX was up 12%. See how Jeff knew gold stocks were ready for a big rally.
 
Then make sure to check out his latest advice on gold stocks here: Your Final Shot at the Gold Stock Buy Signal.

In The Daily Crux
Market Notes
"Safe" currency boom continues... Swiss franc and Japanese yen jump to fresh all-time highs.
 
S&P 500 drops 5% in six trading days... sitting just above a key support level.
 
Hospital and nursing home stocks plummet after government cuts Medicare reimbursement rates by 11%.
 
Big steelmakers Arcelor Mittal, Nucor, and U.S. Steel sink to six-month lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1286.94 -0.4% +16.8%
Oil (USO) 37.20 -0.6% +5.3%
Gold (GLD) 157.72 -0.4% +36.6%
Silver (SLV) 38.29 -1.4% +117.8%
U.S. Dollar 23.85 -67.9% -70.8%
Euro 1.43 -0.9% +9.2%
Volatility (^VIX) 23.66 -6.3% +0.7%
Gold Stocks (^HUI) 543.61 -2.0% +24.7%
10-Year Yield 2.81 -4.8% -6.3%

World ETFs
Symbol Price
Change
52-Wk
S. Korea (EWY) 65.89 +0.3% +35.4%
Taiwan (EWT) 15.22 +0.4% +25.0%
Singapore (EWS) 14.43 +0.4% +21.6%
Israel (ISL) 17.02 -1.2% +21.1%
S. Africa (EZA) 70.70 +1.3% +20.6%
USA (SPY) 128.78 -0.4% +19.1%
Canada (EWC) 31.00 +0.2% +18.3%
Russia (TRF) 21.75 +1.3% +18.1%
Japan (EWJ) 10.61 -0.9% +11.9%
Lat.America (ILF) 49.61 +0.2% +8.8%
India (IFN) 29.97 +0.6% +5.0%
China (FXI) 42.22 -0.3% +4.5%

Sector ETFs
Symbol Price
Change
52-Wk
Internet (HHH) 78.98 -0.4% +50.9%
Oil Service (OIH) 156.58 -0.8% +50.8%
Basic Mat (IYM) 77.14 -0.1% +30.6%
Big Tech (QQQQ) 57.73 -0.5% +27.0%
Retail (PMR) 20.65 -0.4% +26.5%
Consumer Svcs (IYC) 71.23 -0.7% +25.7%
Health Care (IYH) 69.62 -1.8% +20.1%
Real Estate (IYR) 59.63 -1.3% +19.8%
Media (PBS) 14.37 -0.9% +19.4%
Big Pharma (PPH) 68.45 -1.1% +19.3%
Telecom (IYZ) 23.53 +0.4% +18.8%
Industrials (IYJ) 65.02 -0.7% +17.8%
Semis (PSI) 15.14 -0.4% +17.2%
Transportation (IYT) 92.36 -1.0% +17.2%
Software (PSJ) 24.71 -0.5% +15.6%
Water (PHO) 18.34 -0.7% +14.7%
Utilities (XLU) 33.27 +0.3% +14.3%
Biotech (PBE) 20.75 -1.6% +13.3%
Defense (PPA) 18.78 -1.3% +10.2%
Construction (PKB) 12.38 -0.5% +9.9%
Insurance (PIC) 15.84 +0.2% +7.8%
Financials (IYF) 54.35 -0.3% +4.1%
Nanotech (PXN) 8.17 -0.7% -8.2%
Alt. Energy (PBW) 8.27 -0.2% -9.7%

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