- Stress Level: VIX Index Above 40
- The VIX Index, also known as the “fear gauge,” measures market volatility. When it surpasses 40, it signals extreme fear and uncertainty among investors. Historically, this level has coincided with market bottoms, as panic selling reaches its peak.
- Flush Selling / Panic Selling
- A flush sell-off occurs when investors capitulate, selling their holdings at any price due to fear and desperation. This often happens after a prolonged downtrend, resulting in a sharp drop in stock prices. When selling becomes irrational and widespread, it suggests that most weak hands have exited, setting the stage for a potential rebound.
- Rising Trading Volume / Institutional Buying
- As retail investors panic-sell, institutional investors and smart money step in to buy stocks at heavily discounted prices. A spike in trading volume accompanied by stabilizing prices suggests that large investors see value in the market, often marking the beginning of a recovery.
Why These Signals Matter
These three indicators, when occurring together, historically signal that a market bottom is near. While no signal is foolproof, they provide valuable insight into when sentiment has hit rock bottom, often preceding a major reversal.
