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S&P 500: Volatility is Low, but Opportunity Still Exists

S&P 500: Volatility is Low, but Opportunity Still Exists

Paul Robinson,

What’s inside:

  • S&P 500 stalling in record territory, but isn’t yet painting a bearish picture
  • Preferred approach is buying small dips with close-at-hand price targets
  • Continuing to stay the course until we see price action suggest a decline may set in

See what’s driving global equity markets in our quarterly forecast.

The last time we discussed the S&P 500, aside from the weekly forecast, we were making note of the consolidation pattern (triangle on the hourly) forming beneath the record high carved out on March 1. Yesterday, the market printed a new record high but was unable to sustain and closed down on the session. The price action is uninspiring right now. After-all, the CBOE Volatility Index (VIX) did hit its lowest level in 24 years the other day – lackluster price action is to be expected with volatility this low.

The consolidation period from late-April to recent hasn’t resulted in the most bullish of breakouts. This doesn’t mean the market is at an inflection point implying it's done going up, but between price action and the fact vol is very low, it does imply that if we are to continue seeing news highs they may be achieved in a grinding fashion. This can make life difficult for traders, even for those trading from the long-side.

The preferred approach, until we see anything to suggest the market wants to reverse lower, is to focus on small dips as potential buying opportunities. It’s been working on the very short-term, and until it stops working we’ll run with this plan. Still keeping good risk/reward measures in mind, booking profits on long positions in this tape and not looking for a big run is a prudent approach.

S&P 500: Daily

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---Written by Paul Robinson, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.