A Major Move Is Brewing in U.S. Stocks
There is a massive, collective volatility squeeze occurring across the financial markets, including stocks, which signals that a massive move is approaching soon.
Over the past few weeks, I’ve been closely tracking a series of rare volatility squeezes across key financial markets, including U.S. Treasuries, the U.S. dollar, gold, and copper & silver. Now, to top it all off, I’ve identified a volatility squeeze forming in the U.S. stock market, which is the focus of today’s report. These setups are not isolated or coincidental but instead reflect a broader underlying pattern. The markets are currently experiencing a massive, collective volatility squeeze as they wait for clarity on several critical economic fronts.
A volatility squeeze is a period of unusually low volatility that leads to a surge in volatility, known as a volatility breakout. These squeezes are important to watch because they frequently precede large market moves. If you haven’t already, I recommend reading my recent explanation of volatility squeezes to better understand the context of today’s update.
To start, let’s take a look at the chart of the bellwether S&P 500 stock index. It has been relatively quiet over the past two months, and that calm has led to the formation of a volatility squeeze. The squeeze is clearly visible on the chart using the Bollinger Band Width indicator shown just below. If you’ve read my volatility squeeze tutorial linked above, you’ll remember that periods of extremely low volatility typically culminate in major volatility breakouts (which implies significant price moves in the underlying asset). I believe the S&P 500 and, by extension, the broader U.S. stock market is on the verge of one of those big moves.
It’s notable enough that the S&P 500 is currently in a volatility squeeze, which is a rare occurrence in itself. But what makes this setup even more significant is the fact that volatility hasn’t been this low since July 2019—over six years ago. That period of low volatility ultimately preceded the 2020 stock market crash.
Volatility squeezes typically lead to powerful volatility breakouts that tend to be proportional to how extreme the squeeze was, which makes the current setup particularly interesting and worth watching. I’ll discuss which direction the market is likely to move shortly, but first I want to establish my broader case that it is on the verge of a major move.
The volatility squeeze is also visible in other U.S. stock indices, such as the tech-heavy Nasdaq 100, which adds further credence to the theory: