The Standard and Poors 500 index (SPX) closed today at 7719, down 29 points for a loss of 0.4%. SPX opened the week at 7698, setting up a weekly gain of 0.3%. Trading volume has run below the 50 dma nearly all of August.
VIX, the volatility index for the S&P 500 options, opened the week at 15.2%, peaked at 16.8% on Tuesday, and then declined Wednesday and Thursday. VIX closed today at 14.5%, up 0.2 points or 1.5%. Given all of the news focused on the Middle East, this steady decline in implied volatility is telling. The markets are nervous but not overly concerned.
I monitor the movement of high beta stocks by tracking the ETF containing the top 100 S&P 500 stocks ranked by beta, SPHB. SPHB closed today at 148.4, up 2.1 points or +1.4%. SPHB opened the week at 145.8, setting up a weekly gain of 1.8%. Trading volume rose above its 50 dma on Tuesday and declined the rest of the week.
The NASDAQ Composite index closed today at 26,507, down 77 points or -0.3%. NASDAQ opened the week at 26,359, setting up a weekly gain of 0.5%. NASDAQ’s trading volume is running below the 50 dma and continued to decline all week.
The broad stock market is in a strong bullish trend. The S&P 500 stocks are up 17.7% since April 1. This seems somewhat surprising when one watches the evening news with so much political unrest and widely contrasting views on the war in Iran. Only two areas in my trading are consistently profitable this year: the SPX Zero DTE iron condors and the SPX long term iron condors in the Flying With The Condor™ service. Both services currently have net returns greater than 30% year to date. My short-term trades, with trade durations of 2-4 weeks, are struggling. The underlying issue is the extreme price volatility we have seen this year. Saying the market overreacts to every Trump remark or the latest rumor may oversimplify the situation, but not by much. Zero dte trades or longer-term trades lasting 50-60 days are my most profitable trades in this market environment. Day trading forces one to respond quickly to rapid price changes and trades of longer duration dampen the effects of price volatility.
Note the items in the economic data I have highlighted above. The August jobs report surprised economists, doubling their estimates. The S&P and ISM manufacturing and services surveys are all greater than 50%, suggesting expansion. Q1 GDP growth settled at 2.1% (annualized), and Q2 GDP is steady at 1.5%. The CPI reported 0.1% month over month and 2.5% year over year. Wages have grown 3.5% over the past twelve months, indicating real wage growth after inflation.
This is the foundation of a bullish stock market trend. Record high levels of domestic capital investments have been announced this year and several are already breaking ground, ranging from AI to industrial goods. Oil prices will quickly decline after the Iran war is ended. Lower oil prices will turn economic metrics higher and reduce the inflation numbers.
The primary issue currently facing investors is price volatility in the markets. It is easy to be whipsawed in and out of solid stocks. I have been stopped out of several positions and found myself reentering those same stocks within a few days.
I started trading stocks in the eighties with large trading commissions. That forced traders to hold stocks through the whipsaws to minimize commissions. But trading commissions are now at all-time lows. More active trading doesn’t incur the cost in commissions that it once did. Establish tighter stops and reduce market exposure to minimize losses. Combine that with an aggressive trading style that allows you to take profits earlier and start a new trade in the same stock.
If you have any questions or concerns, please contact me. I will be happy to help in any way I can.
