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The Standard and Poor’s 500 Index (SPX) closed Friday at 3397, up 12 points on the day and up 0.5% for the week. On Tuesday, SPX broke the all-time high of 3386 set on 2/19/20. It still perplexes me how we could possibly be back where we were before this economy was effectively shut down a few months ago. The price chart reminds me of a math function asymptotically nearing its maximum value. The prices appear to have been flattening out as we neared the February high. Nothing changed this week on the trading volume front. Trading volume for the S&P 500 companies remains anemic, running well below the 50-day moving average (dma) all week. I interpret this as a sign of caution. Large amounts of cash remain on the sidelines or in safer investments.

The volatility index for the S&P 500 options, VIX, opened the week at 22.5% and closed unchanged Friday at 22.5%. VIX dipped early in the week, but then rose to close flat on the week. Volatility levels above 20% are relatively high historically, even though we may be becoming accustomed to them at this point. This remains a nervous market. Be cautious.

As the S&P 500 index leveled out this week, IWM, the ETF based on the Russell 2000 group of companies, declined. IWM opened the week at 157.50 and closed Friday at 154.61, down almost 2%. The small cap stocks on the Russell 200 act as the canaries in the coal mine and may be the early warning signal of a pullback. At a minimum, it adds to my caution.

The same old story is still unfolding for the NASDAQ Composite index. It opened the week at 11,083 and closed at 11,312, up 2.1%. Friday’s close set another all-time high for NASDAQ. NASDAQ’s trading volume has been running  below the 50-day moving average (dma) with only two exceptions since the first of July, but volume did perk up a bit Thursday and Friday.

Where do we stand? One could superficially think the storm has passed. After all, we are back where started before this nasty correction. All is well. Baloney.

I don’t know of any rationale for these market price levels. Cautionary signs abound:

•    Below average trading volume as prices move higher

•    Flattening of the S&P 500 as we near the pre-correction highs

•    The Russell 2000 turning downward

•    Market volatility (VIX) remains moderately high
•    Fifteen million people are unemployed

However, I am making a lot of money in this market. I brought in 5.2% in my trading accounts during the August expiration month. Don’t annualize that return; it will make your head explode.

The majority of that income has come from selling calls and puts against large blue-chip stocks. Volatility remains high and consequently the options are expensive. Traders often forget that higher volatility brings higher risk. I am managing the stops more conservatively so I shouldn’t give back much when this market ride ends.

Carefully weigh the risks of this market. There is money to be made but manage the risk prudently.