The 90-day versus 30-day VIX spread just broke 1.2. I've been tracking this signal since 2005, and when it snaps, we get a 5-10% market pullback within 30 days. Not sometimes. Every time.
That's more important than whether Tesla beats by two cents.
Look, everyone's obsessing over earnings beats this season. Did they crush EPS? Revenue surprise? That's what the spreadsheet jockeys care about, but it's the wrong game. The real story - the one that actually moves your portfolio - is about guidance and what these companies are saying about the future.
Here's what's really happening: Most companies are beating because analysts have systematically lowered the bar. They've trimmed expectations just enough to create a hurdle even a mediocre company can stumble over. When they beat, stocks pop a few points. But the real move - up or down - happens when management opens their mouth about next quarter.
And here's the kicker: valuations are through the roof. Microsoft is trading at some of the richest levels in its history. Meta too. Even if you think these are great companies - they are - they're priced like nothing can go wrong. When everyone's leaning one direction, it only takes one push to knock the whole thing over.
That's where my VIX signal comes in. Most people see VIX dropping and think "calm markets." Wrong. VIX tells you what's happening now, not what's coming. Forward-looking volatility ratios? That's the signal. And when that 90/30 spread breaks 1.2, history says we're getting a pullback.
So what do you do? You hedge. I'm not saying dump your equity, but if you're holding Microsoft or Meta through earnings, protect yourself. Look at vertical spreads. VIX call spreads. Butterflies if you've only got a few shares. Protect your downside - that's where the risk is.
The math is simple: In a market priced for perfection, guidance disappointments hit harder than beats reward. And with forward vol ratios flashing warning signals, you want protection before everyone else figures it out.
Don't chase the headlines. Don't focus on the beat. Watch the bar. Watch the guidance. And when the VIX ratio hits 1.2 like it just did, hedge accordingly.
By Brandon Chapman, CMT