Just Triggered This Only Happens Before Stocks Crash

This happened right before the dot-com bubble, the 2008 financial crisis, and the 2020 crash. It's happening again right now, and I've got the charts to show it's about to take the markets down with it. Now what you're looking at on the left-hand side is the Goldman Sachs U.S. Momentum Index. It's in light blue. On the right-hand side, you've got the 3-day realized volatility of that index in dark blue. But what I want you to keep your focus on is that dotted red line, sitting right around 65 on the right-hand side. Now let's go back to the dot-com bubble and what do we see in the years leading up to it? The momentum index was rising right alongside realized volatility. They both broke above the red line and what happened? The bubble burst. Now let's move forward to the financial crisis. We see the same setup. The momentum index was rising right alongside realized volatility, they broke above the red line, and next thing you know, we're in an all-out financial crisis. But what about 2015 and 2016? You may recall that the markets struggled for right around a year and a half. But look what happened. The momentum index rose right alongside realized volatility and then they came crashing down. And that's a key point. Because as we move into 2020, remember that big correction? Look what happened. Realized volatility shot up way above that red line. When volatility came crumbling down, it brought the markets to its knees. And that happened again in 2022. You see them both move higher and as soon as volatility broke, next thing you know, the markets went with it. And what we're setting up for here is a turning point in the market and what this is suggesting is that everything is about to come crashing down. Because 30-day realized volatility on the US momentum index is now at 63.9. These are levels only previously seen in the technology, media, and telecommunications bubble unwind, the global financial crisis, the subsequent recovery, and the post-COVID boom. And this is why this is so important for you to understand. This is your portfolio, your trading account. This is your well at risk right now. While these periods include both big up and big down markets at the index level, the one commonality is that this level of momo volatility has only previously occurred at major turning points in US momentum. And with everybody crammed into the momentum trade and all these AI and tech stocks, what it's telling us right now is something is about to change and the odds of the market going up are pretty low. Let's take a look back at the chart and now you can see that the index is well above the red line and momentum has fallen at higher, suggesting that we are indeed at an inflection point. Now the challenge here is, it's all about momentum and volatility. Because what we can see is momentum was down 10.7%. That's the third worst day in history. But what it did do, and this is the risk, it pushed the 30-day realized volatility to record highs. And you can see clearly on this chart. In fact, as we go back, you can see in 2023, there was that realized volatility spiked and then declined. How about in 2020? You see the same effect that brought markets down. Even in 2089, realized volatility didn't get that high. But the dot-com bubble, and that's what many people are saying now the markets are starting to look like, you can see very clearly, it had everything to do with the spike in realized volatility and then when it came crashing down, the indices went right along with it. And we haven't seen this since the TMT bubble. But what is notable is the spread between the VXN and the VIX. If you're not familiar with VXN, it's the volatility of the NASDAQ 100. The VIX is the volatility index of the S&P 500. And we've seen this hit levels not seen since the TMT bubble was bursting, suggesting the markets are right on the edge. Take a look at this chart. Here you can see the spread in light blue and the level as of the 1st of July. You can see the thing is off the charts. We haven't seen this happen since the market corrected back in 2020. And remember, that was a pretty sizable correction. So what volatility is clearly saying now, this is a huge warning in the market. Now I want to take a look at my trade screens here because I want you to see what's going on in the VIX. This is something I'm watching every day. This is exactly what caused me to set the S&P 8000 hat off to the sides. Let's take a look. Now before we get to that chart on the VIX, you may be asking, Steve, what do I need to do with my portfolio so I don't get wiped out? How do I trade this so I can make money? What are you doing with your trading account? Well back on Monday, I repositioned. There's one specific thing that I see that takes off nearly every time we see volatility come down, and that's where I wanted to go. And you can follow right along with me. Now all you need to do is sign up for one of my trading reports. There are links in the description below and there's a coupon code for a free 30-day trial. Now in the notes, I talk about how I'm trading this and exactly what I'm doing. I tell you what you can do with your portfolio right now and the trades you can take so you can profit on this. All you need to do is grab those links in the description below. But don't wait because this is happening right now and I want you to profit. I'll see you there. Now you may recall on April 1st, I said that the VIX was going to come all the way down to $16 and sure enough, it did. But what happened afterwards? You can see it didn't continue to go lower which would cause equity prices to rise, instead it spiked. And then what happened? Well it came all the way back down to $16 again. And what followed is vol buyers came in and pushed it right back up. And then today, it dropped all the way back down to $16. Now I want you to hold on to this for a moment because we're going to come back to this chart and I want you to see how it compares with the S&P 500 and you're going to see something very clearly. Again, this is exactly the reason why I closed out my positions and then went into a safety trade. One that I think is going to be the next big winner here. But it's worth remembering, we have to do a little history lesson here, that when looking at the Nasdaq, the one thing that differentiated the record 102% gain of 1999 at the later stages of the blow off top in Q1 2000 was the shift in volatility. Nasdaq volatility consistently declined in 1999 but rose sharply approximately 3 months before the actual peak in the index. Now let's take a look. Now what we're seeing here is the Nasdaq price index in light blue and you can see it rallied up into the dot com bubble, which is exactly the proxy we're looking at now. But what about 90 day realized volatility in dark blue? You can see right around January, it starts to spike. And then what happens? You see the indice peak and starts to drop. And what happens is realized volatility peaks as well, rolls over. And next thing you know, the bubble has been burst and everything comes unwound. And what we're seeing today is the same exact setup. We're seeing elevated positioning across the market. In fact, Goldman knows the momentum exposure in our prime book remains very elevated. In fact, it's at the 92nd percentile on a five-year mark, the 62nd percentile on a one-year mark. And what is the concern here? Well, keep in mind, when everybody is crammed into the same small number of stocks, yes, you get big moves higher, but all of a sudden, once everybody's in it, volatility starts to drop, everybody starts to race for the same exit. And the problem is everybody's crammed in and they can't get out. Let's take a look at Goldman's overall prime book chart. This is a net factor exposure of medium term momentum. And what I want you to see is going back even to 2021, you know, there wasn't extreme exposure to this. Today, exposure is sitting somewhere between 50 to 60% indicating that everybody is chasing momentum stocks higher. And that is indeed the risk here is everyone is all in on these stocks and all it's going to take is a little nudge in the other direction and everything's going to come unglued. Everybody's going to race for the exit. Now let's go back to that VIX chart because I want you to see very clearly how I'm interpreting this. Now remember, it dropped down to 16, not once, not twice, but three times in a row. Now what we should see in a price chart is that the market should have what looks like a triple top. It should go all the way back up to the same levels, but that's the problem. It didn't. Now let's take a look at the SPY ETF here. This is right off my own trade screens. What I want you to see here, it's forming this triangle pattern, the sideways triangle, and this has only one way it's going to resolve. Either it's going to break above the purple line and go higher, or it's going to break below and go lower. But when you keep in mind what's happening in the VIX, it's suggesting it's likely to break lower. Now here's why. Because that first touch of 16, we set a new all-time high. Now had we seen it go lower, then what I would have expected is the index to continue to rally that my 8,000 call would then look like it's actually going to happen. But what followed is we saw the market drop as volatility rose. Then what happened? The VIX came right back to 16. But notably, this is a key point, price didn't go all the way back up to the recent highs. It set a lower high. Then what followed? As we already know, the VIX index rose, price went down, buyers came in, and then what happened today? We see the VIX get back to 16, but we see another lower high. So what this is telling me very clearly is that the market has indeed reached an inflection point. You're seeing market participants trying to drive price higher, but volatility is acting like a floor, saying, look, if you're going to go higher in price, you've got to go lower in volatility. And right now it doesn't want to cross that 16 point path. But let's go zoom into that symmetrical triangle. And you can see very clearly here, I've adjusted my purple lines. Now keep in mind, you say, well, why are you changing your lines, Steve? That's not fair. Well, look, when you're doing tactical analysis, your lines have to move as the market moves. You're never going to get them right the first time for sure. But look at this. We got the purple line touching the top two points where the market peak. And now look, what are we seeing? A lower high right there. Now keep in mind, this either resolves with a breakout above the purple line and it pulls all those people who are short the market into buyers, or you're going to see a decline break below that purple line on the bottom side. And next thing you know, all the buyers are going to turn into sellers. Now my base case is, I think it's going to resolve to the downside. And my clear reason for it is all those touches at 16 on the VIX and the new lower highs that we're seeing in the market. But there's some other factors here we need to look at because this AI trade, well, according to what's going on in South Korea, it's about to come to an end. And when we look at how bullish is the AI bull, well, keep in mind, the SOX or Semiconductor Index has gone nowhere over the past month. And while the KOSPI is actually headed lower. And keep in mind, from a trading perspective, I like to have this kind of phrase where if the markets aren't going to go up, they're going to start going down. So if you're seeing markets where they just can't move higher and they keep trying to, that's a good indication that maybe it's time to get out of some of your positions. And what we've seen here is the perceived AI bull has become stronger than the actual one. And that's the case. Everybody thinks the market's going up, but it's not. And more concerning, bull markets have delivered enormous volatility. Again, there's that huge red flag, but virtually no net progress. That's rarely an attractive proposition for asset allocators. What you're facing is high risk, little reward. And the reason why is higher volatility goes, the more you see the market can move. So if you're an allocator or you're a trader and you see volatility spiking and the market's not moving, it's a red flag that it's time to get out of your positions. Now let's take a look at the South Korean KOSPI index against the SOX Semiconductor Index, because the relationship here is telling us that something's about to change. Now, the KOSPI hasn't gone anywhere recently, and yet volatility that showed you in yesterday's show spiked to nearly 100. And the SOX index, this is where a lot of U.S. investors are crammed into. You can see it's following the exact same pattern. Now let's take a look at the EWY ETF. This is the South Korean ETF right off of my own trade screen here. Now I want you to think back. We'd looked at this similar pattern in oil. Remember it broke down and I said oil was going to come crumbling down. And some people said, no, it's not going to happen. But it did. And we're seeing the exact same setup here. So you'll notice I've got this purple line here, and this is where people were buying on the way up. You see, every time it touched that line, buyers stepped in. But what happens when it breaks that line? What happens is you start to see people that previously bought turn into sellers. And what happens is it starts to accelerate to the downside. And the further it falls, the more people that want out. And clearly you can see there was a ton of people that were buying up here. Now I want you to take a look at the side part. You see those green lines? Well, that is the volume profile. That's where we're going to see most of the volume that's traded over a period at a certain price. This is really important because you can see there was a ton of volume traded right here and price is breaking below it. But the big red flag is look, there was hardly any volume traded right here when price jumped. So as price goes down, the support is somewhere right around 150, not a lot of support there before it gets down to its six month volume profile, 133, where there's a lot of support. And this is exactly where I'm seeing the path of the market. This is what the VIX is telling me is that the path now is to the downside. Now what do I think happens afterwards? Well, that's the case where I think we could get to 8,000. I think a lot of people are going to fly back in, they're going to take a lot of leverage and they're going to jump and hope the market flies. But there's another risk in the short term. And some of you have been asking in the comments, Steve, when are you going to talk about the yen and the carry trade? Well, it's starting to unwind right now. Now if you've never heard the carry trade, what happened is people would go and they'd short the Japanese yen, meaning they thought it was going to fall. They then take money from that and they would buy high flying, say US tech stocks or other things and make money on that. Now here's the problem. If you start to see the yen rally, what's going to happen? All these people that are short, they're going to get stopped out. They're going to be forced out of their positions and they're also going to get margin called on their other positions. That's the risk. Now the yen climbs with traders on high alert for intervention risks as we now hear from the BOJ. They're saying, look, we are going to unwind all these short positions. We want our currency to go up. And the reason they want it to go up is because as the currency weakens, inflation stays persistent. Keep in mind, the BOJ doesn't really want to raise rates. They want to get all these short sellers out. Now let's take a look at the relationship between the Japanese yen to US dollar spot rate against the Nasdaq 100. And what I want you to see is we've got the Japanese yen to US dollar spot in blue. And when it goes down, this is the yen rising against the dollar. And what happens? You can see the Nasdaq 100 was already in a downward move around 2022 and it kept pushing it lower. How about in 2024? You see the currency pair drop and what happened? The Nasdaq went with it. You see the same thing in 2025. And how about now? Well, that is the big risk here because you look at support underneath the market. Who's been buying it? Well, these traders who've been doing all this short selling against the yen. They're going to get squeezed out of their positions. They're going to have to sell. And next thing you know, you could see an exaggerated move downside in the US stock market. However, there is a correlation between US Treasury yields as the dominant driver between the pair of US dollar and Japanese yen. Let's take a look because now we're going to overlay 10-year Treasury yields in red. And this is shocking because when you think about the markets here, what does everybody think? Obviously, rates are going to go higher. But what if they go lower? And that's my view of what's going to happen. Look at the relationship. You can see very clearly. Yields go down. It's because the currency drops as well. So the dollar is dropping here. The yen is rising. You can see this relationship in 2022 and 2024. You see it in 2025. You can see it repeating. So if we see yields drop, and that is my base case right now, not because the worst is going to raise rates because growth and inflation expectations are falling. So as you can see, what we're facing right now is a momentum trade unwinding and in a big way. And the reason behind it is everything to do with the spike in volatility and based on Goldman's research, we've seen in past market crashes, this was the setup that led everything lower. And with that, I'm Steve Van Meter. Thanks for watching. Thanks for being fans. Bye now.