Beat Wall Street by Watching These 3 Numbers

Watch these three simple things and you’ll beat the pros on Wall Street...

The Fear Gauge

The CBOE Volatility Index is known as “The Fear Gauge.” The background on the name is complex, but also very simple. Think of it like insurance premiums: people would pay higher insurance premiums when they know a storm is coming to protect their house.

The Fear Gauge tells us when traders are paying more for insurance premiums on their portfolios. They do that because they expect a storm in the market.

Therefore, a rising Fear Gauge (VIX) often happens just before the market starts to head into a storm or selloff.

Here’s the rub: The Fear Gauge has been trading at its relative lows around 12, and now it’s moving higher. If it crosses above 15, the market will react as traders will start to take their profits. We saw it come close to crossing above 15 at the end of May, but it quickly reversed.

The Fear Gauge moves quickly. A move above 14.50 today would set the market up for a domino effect of selling to start the week on Monday.

vix chart

Homebuilders

The homebuilders are starting to get worried, and it shows in the trend of the SPDR S&P Homebuilders ETF (XHB).

Earlier this week, earnings results from Lennar (LEN) and KB Homes (KBH) generated some volatility and selling among the industry.

The reason is simple: The outlooks for their businesses weren’t as rosy and bullish as investors would have liked.

It comes down to three things:

  • Interest rates remain high.
  • Housing prices remain high.
  • New inventory is now pouring into the market.

That combination puts the homebuyers in a tough spot that is likely to result in slowing demand, something that investors have seen coming for more than a year.

They’re not as flashy as the AI stocks, but the homebuilder stocks are a big part of the economy. Some economists estimate that the housing market accounts for up to nearly 20% of the national GDP.

The intermediate-term trend in the Homebuilder ETF just turned bearish at the end of May.

Around May 31, the 50-day moving average of the homebuilders ETF rolled over and into a declining trend. Historically, this type of trend forecasts lower prices for the next 4-6 weeks as the trend has turned unfriendly.

The Fed will meet at the end of July for their next interest rate decision. This will be the next time the housing sector could potentially get a bullish catalyst; until then, expect lower prices for these stocks.

kbh stock chart

Boring Bonds

This has the potential to be a game changer.

The market is known to be the smartest money in the market, so everyone should be watching it, but few do.

The reason that the bond market could be a game changer is that we may see bonds emerge from a multi-year bear market over the next week.

The bond market, as measured by the iShares 20+ Year Treasuries ETF (TLT), has been in a long-term bear market since breaking below its 20-month moving average in early 2022. Interest rates have been the main culprit here, but there’s more to the bond market than just rates.

This week, TLT shares moved within striking distance of their 20-month moving average. A close above that critical trendline would signal an improving environment in the credit markets.

A new bull market in the bond market could bring liquidity ahead of what could be a rush for debt as everyone from commercial real estate to industrial companies find a need to refinance lower interest rate debt that has been creeping towards maturity.

We’ve all heard the nightmare scenario of the commercial real estate market melting down. A renewed bull market in bonds could help to absorb some of that risk.

This could be a lifesaver for equity markets.

tlt stock chart