Three Signals From the Craziest Month Since 2020 By Lucas Downey, Editor, TradeSmith’s Alpha Signals April 2025 will go down as one of the most volatile months in history. The trade war is causing all kinds of whacky price dislocations in assets. Stocks, commodities, and rates are all being revalued daily due to breaking news alerts. One minute tariffs are on… The next they’re paused. And then after that, we learn that duties are hiked on China. It’s enough to make your portfolio and head spin. Let me be clear: The wicked volatility we’re witnessing right now only comes around during crises. While we can’t possibly know what the future holds… What we can do is visit history and absorb lessons from the direst periods in recent history. Today we’ll not only investigate two breathtaking short-term swings in equities… We’ll also examine an ultra-high reading in the popular fear index, the CBOE Volatility Index (VIX). I invite you to take a few minutes, forget about tariffs, and simply review the unforgettable recent few sessions. History has a clear message about what’s ahead. And the results just may shock you. | Recommended Link | | | | Don’t let the tariff news and market volatility distract you… Since his first day in office, Trump has backed this new tech that could revolutionize the country. Not AI, cryptos, or electric vehicles – this is much bigger, with massive implications for society and your money. Find out the details while this is still flying under the radar. |  | | Three Rarely Seen Volatility Signals Just Fired Let’s kick things off with equities. Just a handful of days ago, the S&P 500 nearly reached bear market status on a closing basis. It fell -19% from the highs. Intraday on Monday, it was down as much as 23%. A huge portion of that lousy return came from the two-day period ending April 4. During that small window, the large-cap benchmark fell 10.5%, a level of red that rarely comes along. 
Whipsawing tariff headlines are clearly causing all kinds of problems in equities. What’s worse, we don’t have a ton of historical precedent for what the true economic impact will be from these new duties. So instead of trying to guess what comes next, let’s do something better and put this epic drop into historical context. Have we ever dealt with similar violent dips? Absolutely. I went back and found that since 1979, two-day S&P 500 drops of 10% or greater occurred just six times. - Once during the Crash of 1987
- During the Great Financial Crisis of 2008
- And during the March 2020 pandemic crash
What each of these two-day periods have in common is this: extreme economic uncertainty… and incredible forward stock market returns. Below lists each discrete two-day fall of 10% or more for stocks. Incredibly, stocks are up on average one, three, six, 12, and 24 months out. Six months and further, every single instance resulted in positive gains for the S&P 500. 
Before we blow the bullhorn and take a victory lap, let’s also recognize another wickedly volatile event that surfaced shortly after this very signal. Just days after this massive drop on April 9, President Donald Trump told the world that tariffs would be on hold for 90 days for all countries except China. This news unleashed animal spirits. The S&P 500 climbed an unimaginable 9.5%. 
As you’d imagine, this is a rare event indeed! Our first study revealed how huge drawdowns are typically a bullish omen in the end. What about big face-rippers to the upside? Turns out, the picture looks a bit different near-term but similar long-term. The 9.5% advance for the S&P 500 is the third largest daily up-move since 1979, only dwarfed by two dates in October of 2008. Below reveals that there’s only been 13 days when the stock market gained 6% or more in a session. Interestingly, like the first study, these monster rips come during nasty bear markets including October 1987, Q4 of 2008, March 2009, and March and April of 2020. Here’s the bottom line – on average, stocks wobble to the upside one to three months afterward. Out to six months, there’s a lot more green, with only 2008 showing modest losses. Here’s the kicker: 12 and 24 months later, stocks are meaningfully higher with: - 12-month average gains of 37%
- 24-month average gains of 53.3%
The picture is coming into focus. But there’s more work to do. One popular volatility benchmark, the CBOE Volatility Index (VIX), reached levels last seen during the COVID-19 crash of 2020. On April 8, the VIX closed at 52.33. Below reveals how that hasn’t happened in five years. 
Extreme uncertainty means that near-term option prices are elevated to the max. I looked back to 1990 and found just 74 prior instances when the VIX closed above 50. Interestingly, the only readings over that 35-year span include: - 56 counts in late 2008 and early 2009
- 18 counts in March and April 2020
The forward returns echo our second study, with near-term wobbles for equities out to three months. But don’t stay worried too long, because six or more months later, stocks on average are a lot higher. For this study I included not only the S&P 500, but also the Nasdaq 100 and S&P MidCap 400 just for comparison. When the VIX is above 50: - One week later is a coin flip, with flat returns
- One to three months later, the S&P 500, S&P MidCap 400, and Nasdaq are modestly higher with a low hit ratio.
- Six months later, all benchmarks gain double digits on average
- 12 months later, mid-caps and the Nasdaq are higher every single time with about 50% average gains. The S&P 500 gains 32% with a 99% success rate.
- 24 months later, all benchmarks surge, with the S&P 500 +47%, S&P MidCap 400 +74%, and Nasdaq +81%… higher every single time.
Hopefully, by now you can relax and take a deep breath. Yes, this volatility is gut-wrenching, but it will end. If markets were able to eventually shake off a major two-day dip, one-day rip, and nosebleed volatility readings in major crises… Odds are we’ll have brighter days in the future. But that could mean the one- to three-month window is cloudy until this trade war reaches a hopeful conclusion. There’s three things to consider in the meantime. First, consider health care and staples stocks to help you ride out the slowing economic outlook. Second, do not take your eyes off the prize. These nasty volatile periods mean that prior leading stocks are at fire-sale prices. Sharpen your pencils and start preparing for the eventual climb higher… likely a handful of months from now. In the end, high uncertainty breeds opportunity. Third, make sure you’re utilizing TradeSmith software to help you gauge market health. Our volatility-based signals can help you identify which sectors are seeing the most relative strength. But that’s not all it can do. Right now is a perfect time to be using our AI-based forecasting model, Predictive Alpha. This simple but powerful tool shows you the likely direction for stocks over the next 21 trading days. And a recent innovation brought us the Prime projection, an algorithmically determined optimal hold time for thousands of stocks. Back on March 11, for example, Predictive Alpha showed a Prime forecast of +3.5% over 16 trading days for Take-Two Interactive Software (TTWO). Historically, the Prime forecast for TTWO shows directional accuracy of 75%, and precision accuracy of 61%. At the end of the period, TTWO wound up trading 3.58% higher… a difference of less than 5% in the projection. 
A tool like this is invaluable to traders facing volatility right now. Imagine knowing with 75% certainty that a stock you own will be up (or down) in 15 days? What could you do with that information? Buy more? Have a better plan to sell? Sell options for income or speculate with them? Your options open up significantly with this information. Our CEO, Keith Kaplan, will be showing the full potential of the new Predictive Alpha algorithm in a can’t-miss webinar tomorrow night at 8 p.m. Eastern. Sign up right here, and receive five of our algorithm’s most bearish forecasts – stocks it’s projecting to drop hard in the coming weeks. Regards, 
Lucas Downey
Editor, TradeSmith’s Alpha Signals | 
Tidak ada komentar:
Posting Komentar