The US stock market is in full panic mode.
In our last YouTube video, we said that you still had plenty of short-term downside risk in today’s market.
That’s why we removed most of our exposure to US stocks in the recent bounce, sending sell alerts to our clients, and why we are still in a very defensive posture today.
Although the stock market is starting to reach an extreme point of fear and capitulation, in the short term, we don’t think that stocks are quite out of the woods just yet.
One of the reasons for that is that we’ve just seen a signal trigger this week that also triggered before the 2022, 2020, and 2008 crashes.
In this article, we’re going to show you all of the nuances for you to take it into account properly and how we’re approaching this signal with our clients at Bravos Research.
Understanding This Market Decline
Before we show you exactly what this signal is, we first have to understand the nature of this stock market decline by looking at Treasury bond yields.
This is important because yields tell us what financial markets are worried about right now.
Bond yields have been declining at the same time as the stock market during this correction.
This means that financial markets are currently concerned about lower economic growth as a result of Donald Trump’s new tariff policies.
The current sell-off is similar to the decline from 2020, where bond yields were also falling as investors were pricing in lower economic growth during the pandemic.
This is important because market sell-offs based on growth concerns can be a lot more violent in nature.
Growth-Driven Market Declines
We’ve identified all of the market declines since 2008 that were a result of lower growth expectations, just like today.
The good news is that in most of these cases, the US did not enter a recession.
The bad news is that these were all pretty violent and sizable market declines.
In fact, 2 of them were over 20% deep.
In each of these corrections, we saw the VIX index (which measures S&P 500 volatility) cross above 35, marking extreme panic and fear.
The VIX Has Finally Spiked
One of the things we’ve been pointing out during the initial stages of the recent correction is the VIX never reached an extreme level of panic.
We never got the real fear and capitulation that we usually get at market bottoms.
Now, believe it or not, we just got that on last Friday.
VIX spiked above 35, which tells us that we are finally seeing the market reach an extreme level of fear, like past corrections.
Something to keep in mind for longer-term investors is that it’s during these major spikes in volatility where you tend to see the best long-term buying opportunities for US stocks.
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The Gold-to-Silver Ratio Signal
Now, finally, this brings us to the signal that we just saw trigger that’s similar to the 2022, 2020, and 2008 bear markets.
The signal triggered on something called the gold-to-silver ratio.
This is a tool that we watch very closely to give us an understanding of whether financial markets are “risk on” or “risk off.”
The gold-to-silver ratio just broke out above a major basing pattern that it has been developing since 2022.
This is what you call a risk-off signal because it’s telling us that traders are flocking away from silver and into gold.
In April of 2022, we saw a very similar kind of development on the gold-to-silver ratio that broke out above a major basing pattern, just like today.
This breakout occurred right at the start of the 2022 bear market, with stocks dropping by an additional 20% from that moment on.
We also saw a big breakout on the gold-to-silver ratio towards the end of February 2020.
Again, this breakout occurred at the very start of the COVID crash, with stocks dropping by an additional 25% from that moment on.
Rewinding to 2008, we again have a very similar kind of breakout, right before the stock market dropped by another 50%.
So of course this begs the question: are we potentially on the edge of a much more substantial decline in the US stock market and heading into a recession?
A recession has not been our base case for 2025.
We’ve seen multiple corrections in the S&P 500 occur without a recession.
Moreover, the market is in a state of extreme panic right now.
Of course, Donald Trump’s tariffs do have the potential to trigger a recession in the near future.
But, we’re not PhD economists, we are traders.
Our job is to know how to position ourselves correctly regardless of market conditions.
As discussed earlier, we think the market is at an extreme state of panic right now.
So, this is a moment to be scanning for buying opportunities that are at a discount after such an aggressive market decline.
Even if we are heading into a recession, it’s not going to be a straight line down.
We’re going to get rallies along the way and opportunities to go short on the market.
The goal for us in 2025 is to achieve similar or even better performance than in 2024.
Our real-time Trade Alerts are concise and include all necessary details:
- Long/Short position
- Allocation weight
- Entry and Stop-loss levels
- Reasoning for the trade
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