This indicator was wrong just one time in three decades…

It flubbed the 2008 financial crisis. But otherwise, megabank JPMorgan Chase (JPM) says its tool has been a bulletproof predictor of market rallies.

You’re probably skeptical. And you should be. My team and I have warned over and over that anyone who claims to predict the market is probably wrong or a liar.

In this case, though, we actually agree with JPMorgan… This indicator is as close to bulletproof as you can get. Except when the entire financial market imploded in 2008, its “buy” signals have been 100% accurate going back to 1990. That’s an outstanding track record.

Right now, fear is elevated… And this indicator is once again calling for a market rally. We’re sure the smart guys over at JPMorgan are eager to take advantage of this signal.

But here’s the thing…

They’re using it wrong.

The logic behind the indicator makes sense. It tracks the CBOE Volatility Index (“VIX”), which we also call the market’s “fear gauge.” When investors panic and send the VIX soaring more than 50% higher than its one-month moving average, the indicator predicts a market rally.

That’s in line with our understanding of investor sentiment. Markets tend to do the opposite of what everyone is positioned for. So we’re not surprised that JPMorgan’s indicator is so successful.

The VIX is our North Star for options trading…

The higher the VIX, the more investors are afraid of the markets falling. And the more they’re scared, the more they’re willing to pay for options protection. So as option sellers, we prefer to trade when the VIX is high.

There’s a problem, though…

Sometimes the VIX spikes because investors are spooked and markets are falling… but the market continues to fall even more.

When this happens, we can still end up with profits if we collect a big enough premium payment. But other times, we may have to dig ourselves out of a hole by rolling our trades.

The JPMorgan indicator pairs a spike in volatility (higher premium payments for us) with extreme lows in investor sentiment (meaning markets should rally).

JPMorgan’s VIX indicator has signaled 21 rallies since 1990. In the six months after each time the indicator was triggered, the S&P 500 Index gained an average of 9%. Take a look…

As we mentioned earlier, this indicator flashed a false signal during the 2008 global financial crisis. In that case, the extreme market fear truly was justified, and the S&P 500 was still down 33% six months later.

So outside of our financial system being on the brink of collapse, this indicator is useful at pegging likely market rallies.

The folks at JPMorgan use that signal to buy stocks. And sure, that can work. Like we said, stocks go up an average of 9% in the six months following this signal. That’s hardly a bad return.

But we can do better. And that’s because instead of betting on stocks, we sell options…

In our Retirement Trader advisory, our strategy gives us maximum profits when folks are scared of stocks falling when they actually go up… or at least hold steady.

So when we look at the JPMorgan indicator, it’s screaming that it’s time to sell options.

This VIX signal last triggered on January 25. That means markets should finish higher over the six months following that trigger. It also means we’re seeing a lot of fear in the market.

Just last week, we booked two more winners for Retirement Trader subscribers with trades we made on timberland company Rayonier (RYN) and trash giant Waste Management (WM).

As option sellers, we’re salivating. It’s a great time to put our favorite strategy to use.

Here’s to our health, wealth, and a great retirement,

— Dr. David Eifrig

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Source: Daily Wealth