What stock market investors should be tracking in times of extreme volatility
Investors, especially newbies, need to read the signs and not the headlines
In times of trade wars, shifting monetary policies, and rising macroeconomic uncertainties, portfolio rebalancing becomes less about reacting to daily headlines and more about anticipating market structure shifts, identifying momentum exhaustion, and catching early signals of trend reversals. Here are some key takeaways and tactical tips to help mitigate risks in this environment.
Read the higher timeframes before the headlines
Markets often pivot long before headlines catch up. Understanding what higher time frames are signaling — weekly and monthly charts in particular — can be critical for positioning ahead of the crowd.
Weekly/monthly momentum and price action often flag turning points before they make news.
VIX spikes at extremes, especially near levels seen in 2008 and 2020, tend to precede significant market reversals.
Extreme sentiment, especially when pessimism or optimism reaches historical highs, often aligns with key technical lows or highs.
Oversold or overbought conditions on higher time frames, confirmed by signals such as moving average crossovers, declining volume, or strong rejection wicks, can offer early entries into new trends.
Safe haven peaks — notably in gold or the Swiss franc — can act as reversal signals if they coincide with market-wide sentiment shifts.
During recent trade war escalations, global equity markets sank toward significant technical support zones. Momentum indicators on long-term charts echoed extreme fear — levels not seen since 2008 or 2020.
Then came a shift: a 90-day pause in reciprocal tariffs — excluding China — prompted a swift market rebound. Technical positioning helped investors front-run the relief rally:
Oil rallied from $55 to $63.
The UAE MSCI Index surged from 15.40 to 16.90.
Nasdaq rebounded from 16,320 to 19,230.
S&P 500 climbed from 4,800 to 5,490.
Each bounce corresponded with resistance zones, where prices now linger as markets assess ongoing trade dynamics.
Gold: A sentiment barometer
Gold — a classic safe-haven asset — remains elevated above $3,300, signaling sustained risk aversion. But caution is warranted. Monthly RSI levels are revisiting peaks last seen during previous periods of market stress:
During the 2020 pandemic surge, gold declined by more than $450 following the momentum peak.
In the 2008 financial crisis, a similar RSI spike preceded a $350 correction as markets began to stabilize.
While geopolitical stress and demand for safety fuel gold’s rise, these RSI peaks hint at stretched momentum. A resolution or de-escalation of tensions could prompt a sharp pullback, potentially offering a re-entry opportunity once broader uptrends resume.
Takeaways for investors
Consider evaluating portfolio allocations during periods of momentum slowdown, rather than reacting to headlines.
Monitor sentiment indicators, such as the VIX and gold, alongside price action for potential signs of shifting market dynamics.
Refer to higher time frame charts and macroeconomic developments to help guide allocation decisions.
The writer is Chief Market Analyst at Forex.com
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