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Alfred E. Neuman’s infamous quote seemed appropriate as we set new all-time record market highs with the economy in tatters. The Standard and Poor’s 500 Index (SPX) closed trading today at 3714, up 15 points. Incredible as it may seem, the S&P 500 marched 4.2% higher this week. The only sobering sign was watching trading volume steadily decline all week.

VIX, the volatility index for the S&P 500 options, reached 37.2% last week and closed today at 20.9% in about ten days. If one ignores VIX and just watches the market indices, you would think a return to 20% volatility was the all-clear signal. When you can sell puts of solid blue chips stocks for close to one percent yield per week, these are dangerous levels of volatility. Don’t be deceived.

IWM, the ETF based on the Russell 2000 group of companies, closed at 221.65 today, down 3.03. But the incredible news is that today’s close culminated a growth rate of 6.5% for this week. This is the classic ultra-strong bull market where the high beta stocks outperform the blue chips as investors scramble for higher gains. It sounds a little frothy, doesn’t it?

The NASDAQ Composite index closed today at 13,856, up 79 and setting another all-time high. NASDAQ outperformed the S&P 500 with a weekly growth rate of 4.8%. NASDAQ’s trading volume has declined since last week and dipped below the 50 dma today.

What a difference a week can make! Last week’s market had all of the signs of tipping over the edge into a downtrend or at least a pullback. This week saw every index gaining 4% or more. The Russell 2000 gained 6.5%. These aren’t strong gains; they are extraordinary gains.

This underscores the need for caution. I am not suggesting burying all of your cash in the backyard. But I am very carefully positioning my stops and closing trades when they trip the stop – no exceptions and no dreams of recovery. In my opinion, this is an excellent time for selling options. But be conservative. Trade only solid blue chip stock options. Don’t use any margin and close at the first sign of trouble.