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The Standard and Poor’s 500 Index (SPX) ended its bullish run at the market opening of 3706 on Wednesday. That bullish run began back in early November, but the last three days have taken the market a little lower each day. SPX opened the week at 3695 and closed today at 3663, down 32 points or 0.9% on the week. Perhaps it is only a breather in a bullish market. The long lower candlestick shadows yesterday and today were somewhat encouraging. Large declines that end the trading session at the low for the day are serious bearish signals. Trading volume on the S&P 500 ran below the 50-day moving average (dma) every day this week with the exception of Wednesday. That suggests that whatever selling drove the week’s lackluster performance was muted.

VIX, the volatility index for the S&P 500 options opened the week at 22.0% and closed today at 23.3%, an increase of almost 6%. We were given a glimmer of hope when VIX spiked up over 25% today but could not hold that high and dropped back to close at 23%.

IWM, the ETF based on the Russell 2000 group of companies, set itself apart this week. It was the only broad-based market index that posted a positive week, opening Monday at 188.23 and closing today at 190.30, up 1.1% for the week. These are the “risk on” high beta stocks.

The NASDAQ Composite index closed today at 12,378 for a loss of 28 points for today and a 0.7% decline for the week. NASDAQ’s trading volume remained above the 50 dma all week but fell well below the 50 dma today with 3.6 billion shares, significantly lower than the 50 dma at 4.2 billion shares.

If we use the S&P 500 index as our market surrogate, we now stand at a positive gain of nearly 13% for the year. That is remarkable when we recall that ugly 35% correction in March. If we shift our focus to the gains since the beginning of November through today, we are up 11.1%. Given all of the turmoil of rioting and protests leading up to the election and even the remaining uncertainty surrounding some of the election results, a double-digit gain for November and the first week of December is rather amazing.

The Russell 2000 index has taken the role of the market leader over the past several weeks, losing less when the market paused and gaining more when it traded higher. Russell was the only broad market index to post a positive gain this week. That is significant. These are the high beta stocks that tend to be sold first when the large institutional players get nervous, but they aren’t being sold.

Perhaps this market is anticipating the progress on a Covid vaccine that appears imminent. In any case, this market continues to hold up rather well, in spite of the uncertainty of the election, the pandemic and the vaccine. We may be becoming accustomed to these higher levels of implied volatility, but it pays to remind ourselves that twenty-plus percent volatility is historically high. I have been selling calls and puts since early April, and this has resulted in strong gains. As I rolled out several positions and created new ones today, I noticed that almost every option sale was yielding over one percent for one week! This isn’t normal and it carries an implicit warning. We are not collecting these rich option premiums because risk is low.

As the farmers say, make hay while the sun shines. But keep a close watch on the skies. High levels of implied volatility imply that storms may be coming.