This week’s price action in the Standard and Poor’s 500 Index (SPX) has tracked almost perfectly sideways, closing Friday within a dollar of Monday’s open. Friday’s price action resulted in the classic doji candlestick, where the opening and closing prices are very close or identical (five cents apart on Friday). The doji candlestick is the result of market indecision; the strength of the bulls and the bears are almost perfectly matched. But note that this doji is very close to the all-time high of SPX, so the bulls are holding up this market very well.
The Russell 2000 Index (RUT) has been the weakest of the major market averages all year and the contrast last week was particularly stark as RUT ran steadily lower all week. RUT's bearish trend continued this week, but RUT bounced strongly on Friday, recovering almost all of Thursday’s losses. RUT now is running roughly at its March peak. RUT has now eclipsed four previous all-time highs and is almost three percent below its most recent high on July 25th. Support around $1396 held through June and July, so I will be keeping a close eye on that support level. If RUT breaks support, I will be concerned about the overall market following suit.
The SPX volatility Index, VIX, spiked up over 11% last week and essentially moved sideways with the markets this week, closing Friday at 10.0%. Volatility remains at historically very low levels. Some of the recent correction chatter is based on the history of periods of low volatility preceding a major correction. While that is true, they fail to note that those periods of low volatility may last a long time. As many wise traders have observed, you can lose a lot of money waiting on the market to do what you predicted.
This market is nearly perfect for my SPX iron condor trades with the August and September positions standing at gains of 14% and 4%, respectively. No adjustments have been necessary for these trades, in contrast to the July SPX iron condor that required three adjustments to finally reach a gain of 12%.
I am still playing this market as a sideways to bullish trend, but I am cautious. it is a nervous market. Many traders are concerned about giving back any of the gains from this bullish trend. Their hands are on their sell buttons.