October is well known for its large number of severe market crashes, from the famous crash of 1929 that ushered in the great depression to the financial meltdown of 2008. Maybe the hobgoblin of market crashes has the bulls pulling in their horns (too many metaphors). SPX closed today at $2154, down $7, and ending the week down ten dollars. RUT didn't fare any better, closing down at $1237, losing $14 for the week. Volatility rose a bit today, with the VIX rising about seven tenths of a point to close at 13.5%.
SPX has traded sideways for about three months now, with a brief pullback on September 9th, followed by a quick recovery. But now we are firmly back in the sideways trading channel. If you plot the Bollinger bands on the SPX, you will see that the price has stayed close to the center of the bands for over two weeks.
Whereas SPX and the NASDAQ Composite indices have set new all-time highs this year, the Russell 2000 Index (RUT) has failed to reach the high it set at $1296 in the summer of 2015. This is a bearish sign because the high beta stocks of the Russell have normally led bull markets higher.
It is interesting that the jobs report this morning didn't move this market much either way. I thought a weak report, which we received, would enthuse the bulls since they would expect weak jobs numbers to hold the Fed's interest rate hikes at bay for a while longer.
This sideways market is ideal for our iron condor positions in the Flying With The Condor™ service. Our October iron condor on SPX is up 23% and the November position stands at a net gain of 9%. I will probably close the October position next week and open December.
Nothing much has changed in this market for several months now. The GDP growth rate is minimal, corporate earnings are mediocre and the forward guidance has been bleak. The uncertainties surrounding the presidential election are piled on top to collectively hold the bulls in check. But the near zero interest rates are holding the bears in check. The result is a choppy, nervous, sideways market. We may be stuck here for a while.