Editor’s note: We can’t think of anybody better at navigating the ups and downs of trading than master trader and Casey Research friend Jeff Clark. Jeff’s a former $200 million Silicon Valley money manager. He retired at 42 because he was able to predict and take advantage of numerous short-term market moves. And on Thursday, he’s sharing some of his secrets with Dispatch readers… Several times a year, Jeff holds Q&A sessions with his subscribers. But for the first time, he’s opening it up to anyone who’s interested in becoming a better trader. You see, Jeff believes stocks are headed for a period of turmoil... and that investors should be defensive in the short term. Read on for how he’s using his “crystal ball” method to glimpse the storm ahead… This “Crystal Ball” Indicator Is Urging Caution By Jeff Clark, editor, Delta Report If you’ve been following my morning newsletter the Market Minute, you know the Volatility Index (VIX) was on the verge of generating a new broad market sell signal. We now have that signal. So traders should now be on the lookout for a pullback in the stock market. And if you want to know how long the decline will last, then pay attention to the action in VIX option prices. Longtime readers know I often refer to VIX option prices as the “crystal ball” of the stock market. That’s because, if we pay close attention to the pricing of VIX options, we can see where the market is most likely headed next. Let me explain… The VIX is a measurement of fear in the marketplace. A high and rising VIX indicates that investors are scared and traders are bearish. A low and declining VIX indicates that investors are bullish and traders are complacent. The VIX is a good contrary indicator. It shows investors when the market is at extreme levels and vulnerable to a reversal. But the VIX alone isn’t a “crystal ball.” While the VIX does flash caution signs when the market gets a little too overheated to the upside or the downside, it doesn’t tell you how soon those trends will reverse. Or how long that reversal will last. So trying to time a trade by watching the VIX is like driving on a road where the stoplights are timed inconsistently. One light might be yellow for five seconds before it turns red. The next light stays yellow for 20 seconds. Then, the next light might stay yellow for four minutes. It’s hard to drive on that kind of road. And it’s hard to trade by just watching the Volatility Index. But watching VIX options, on the other hand… well, that’s more like having a crystal ball. You see, VIX options provide terrific clues about where most traders expect the VIX to be on option expiration day. On Monday, for example, VIX option prices told us that traders expect the index to move higher over the next week. We know this because the price of VIX call options (bets on a rise) that expire on July 17 is three times more than the price for similar VIX put options (bets on a fall). This tells us that traders are betting more on a rising VIX than a falling VIX. And if we go out one month further, the VIX call options that expire on August 21 are five times the price of the put options. VIX option traders clearly expect the index to move higher this week, and even higher still over the next month. And a rising VIX (rising volatility) usually accompanies a falling stock market. So right now, the “crystal ball” tells us that investors should be defensive… trim some profits from winning positions this week… and hang onto some cash. If you’re a trader, consider adding some short exposure into this move. Best regards and good trading, Jeff Clark Editor, Delta Report P.S. Please join me for a special Q&A session this Thursday at 2 p.m. ET. Normally, my Q&A sessions are reserved only for subscribers of my trading advisory, the Delta Report. But this time, because I think the stock market is setting up for a remarkable period of volatility – one that can be hugely profitable if you’re prepared for it – we’re opening up this Q&A session to Casey Daily Dispatch readers as well. I urge you to take advantage of this opportunity and join me on Thursday. You can watch the Q&A when we go live Thursday right here… And you can submit any questions you have right here… Like what you’re reading? 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