The Standard and Poors 500 Index (SPX) paused its upward trek this week. The intraday price action on SPX both yesterday and today challenged $1680, but then bounced back upward. I think today's price action illustrates that the bullish foundation of this market is still very much intact. I think we are seeing the market pause as it looks forward to a key FOMC announcement next week.

But the FOMC announcement Wednesday afternoon is not the only possible source for market volatility next week. The Case Schiller Housing Price Index and the Chicago PMI are two influential and closely watch reports scheduled for next week. And we also have the second quarter GDP growth rate being reported as well as the granddaddy of market moving reports, the Non-Farm Payroll Report Friday. We may see a very volatile week in the markets.

During this strong bull market, the Russell 2000 Index (RUT) has traded even more bullishly than SPX. Market analysts see this as confirmation of the overall bullish trend, but today’s market action strikes me as a possible divergence. SPX opened down at $1687 and traded to a low at $1676. Then SPX steadily climbed all afternoon to close at $1692, recovering all of its losses and gaining one dollar on the day.

Based on the past few months, we might have expected RUT to post gains on a day like this, but it didn’t. RUT closed down at $1048 for a loss of $6. Is RUT signaling weakness ahead? Perhaps today’s divergence of RUT from SPX is just an aberration. But it is a signal worth keeping in mind. At a minimum, it underscores the need for caution going into next week.

My Aug iron condor on RUT is working off its deficit slowly with a net loss of $3,800 with position Greeks of delta = -$102 and theta = +$171.

Have a great weekend.