The caution flag is still flying too high for a new short term trade entry.
Monday knocked many traders out of the water; we are thankful that we did not have on a short term weekly trade. The market has made progress recovering from the sharp selloff this week; SPX has moved up 120 points from the low on Monday to close Thursday at 1987, or a gain of 6.4%.
The volatility index VIX spiked to a high on Monday of over 53, one of the highest levels in years. It has consequently dropped over 50% to close yesterday at 26.10, but still way above the recent range indicating there is still fear and uncertainty among investors.
I wrote the other day that unless the VIX dropped significantly below 30, I didn't feel comfortable recommending or entering a new short term trade such as the weekly SPX Iron Condor. The SPX and VIX charts below give a visual of the volatility we are continuing to see throughout this week.
SPX 6 month chart
VIX 6 month chart
The risk is high for either direction at the moment with all the violent price swings we're seeing, much of which is occurring during the overnight sessions and creating large gap openings for us. These gaps, particularly over the weekend, can be deadly to short term, non-directional trades such as the weekly Iron Condor.
The conclusion is that rather than risk having to catch a falling knife in either direction on Monday morning, I am not recommending a new trade entry today for the SPX weekly Iron Condor. We have a good year-to-date track record for this trade, and it's not worth jeopardizing that record by jumping into these choppy waters today.
Cash can be a very profitable position these days, so we will sit on the sidelines, be patient, and wait until the bulls and bears battle this out. Remember the proverb I have quoted before: "Infinite Patience Yields Immediate Results."
The time will come when we can re-enter this weekly trade strategy, in the meantime please respect what the charts are telling us. ES futures are down -20 points as of this writing, so the battlefield is clearly still in play. Please stay safe.
As always, stay keen on your risk management and trade carefully,