This spring and summer we saw the stock market trade with the lowest volatility in its entire history.
Up until August there were only two days this year in which the S&P 500 went down more than 1% and two days in which it went up more than 1%.
That was the longest period of time in which the market moved with such little daily volatility in its history.
As a consequence people got lulled asleep into thinking all they needed to do was buy ETF's and let them float up and they could get rich with no worries.
And as a result the VIX, which measures the premium options players are paying volatility, also traded in a way it never had before by staying below $12.00 for longer than it ever had before and by hitting its lowest intraday lower ever on one July day.
Nothing lasts forever and that pattern of VIX trading has ended in the past two weeks.
Take a look at the VIX chart.
The VIX was trading in a range between 11.50 and 9.50 for several months and broke out to form a new range it is trading in now with a recent high of 16.00 and probable support around 11.00.
That means expect bigger daily price swings going forward.
That's good for daytraders, but what does it mean for investors?
Historically when you see a bull market rally with super low volatility and then start to shift into high volatility what you are witnessing is a simple topping process that will lead to lower prices in the coming months.
This means it is time to reduce your risk exposure to the stock market and if you want to profit find ways to do so by BETTING AGAINST the stock market and even individual stocks.
Now interestingly bonds and gold have been going up the past three weeks as the VIX has gone higher so money is moving into them both as a safehaven and will likely continue to do so.
I believe that part of the reason this is happening is that a showdown is coming between Donald Trump and Congress and really the entire country.
Whether you like Trump or not what is obvious is that there is growing political instability in Washington DC and what we are now seeing is Donald Trump play to an increasingly narrow national base of public support and talk more and more like a demagogue.
I talked about this on The Ochelli Effect show on Tuesday:
Donald Trump's Rise as a Demagogue - Mike Swanson on the Ochelli Effect (08/24/2017)
I also personally went up to Charlottesville last weekend as I live only two hours away and went to college there.
Donald Trump said that there were "fine people" in the crowd of Nazis last week.
I can tell you that this is not true.
The event was organized by neo-Nazis and called "Unite the Right" in order to get people to come and fall under their leadership so other groups that lobby for the Confederate flag and the monuments DID NOT GO.
There were no good people there like Trump claimed there were.
They were all Nazi nuts and KKK types like David Duke and by Trump saying things the way he did last week he actually encouraged them to do more events like this.
Why did Trump say these things?
In order to imply to his base - look you are a victim too no matter what happened in Charlottesville and I hate your enemies.
But anyway I did a video up there mainly to warn on the risks now facing stock market investors thanks to this growing mess:
Donald Trump Is Now A Stock Market Risk Factor - Mike Swanson (08/21/2017)
The key is stock market volatility is now coming and the low market volatility of this spring and summer is over.
And we must adjust and adapt to that new reality.