This was a shortened week due to the Labor Day holiday, but the bulls came out in strength. The opened Tuesday at 2909, and closed today at 2979, an increase of 70 points or +2.4% in a single week. SPX had been caught in a trading range from 2822 to 2940 since August 8th, but the market gapped open strongly Thursday morning and solidly broke through the 50-day moving average (dma) at 2944. Lest we get ahead of ourselves, trading volume remains weak. Volume remained below the 50 dma until Thursday, but only touched the average then and dropped back lower today. As the bulls drive this market higher, they do so carefully. They are not “all in”.
When we plot the Bollinger bands on the SPX chart with two standard deviations above and below the 20 dma, it makes the significance of this move more apparent. SPX started the week near the center of the bands, but Thursday’s price spurt closed outside the upper edge of the Bollinger bands, a relatively rare event. And SPX maintained just enough bullish price action today to close right on the upper edge of those bands. From a statistical, random walk point of view, it will be hard for next week’s market to match this week’s strong climb higher.
The volatility index for the S&P 500 options, , opened this week at 21% and closed today at 15%. I regard 15% as the “line in the sand”. Volatility levels below 15% are relatively benign, but I start to raise the caution flag above that level. So we are right on the edge: not panicky, but not calm either.
It is old news to observe that the continues to trade far more weakly than its big brother indices. Whereas SPX gained 2.4% this week,