Investing With Options header image ≡ Menu

Just Released: Get Your FREE Iron Condor Trading Toolkit

Click Here to Download

The Trend Drought In US Stocks

rocksThe past 6 months for the S&P 500...

...I wouldn't call it quiet...

...but the market has gone nowhere since November.

This is most likely a reaction to the Fed's non-reaction, and how any new piece of economic data gets boiled down to a "will they or won't they" projection onto what the Fed will do into rate hike decision.

But while the market hasn't made movement, it sure has been spinning it's wheels.

Below is a chart of the SPX with a trendiness indicator on the lower end.


This reading shows us how much of the price action has been trend-based and how much has been range-based. It's part of my Market Cycles approach to trading.

Generally, when this reading gets too low, it means the market has been rangebound for too long and stocks are due for a move.

And if this reading gets too high, it means the market has moved in one direction too quickly and is ready for reversion.

The "Trendiness" indicator is trend-agnostic, meaning it doesn't indicate which way the market will break-- it's more suited for how much size option traders should put on in different strategies.

What's extraordinary here is the amount of time we've spent in a non-trending environment.

Something is going to give here. There's only so long that market participants can hold their breath before they exhale and start probing for new prices.

Here's what this means for options traders:

1. Start looking for long vol positions 2-3 months out. Options are cheap in certain areas... if you're playing to the long side of things consider buying call sinstead of stocks, and only sell volatility after you see a large move in a stock.

2. If you're income trading, buy some upside hedges. By way of their structure, income trades tend to start net short. I'm not concerned about downside tail risk but upside so look for ways to either reduce size or hedge so you don't get smoked on the long side.

3. Stress test your portfolio. We've had an amazing period of low-ish correlations so you could get away with taking exposure in a bunch of different assets. But if we start to see more fundamental catalysts, we could hop back on the Great Macro Conveyor belt and end up with the same kinds of risks across many different markets.

Remember: this is not some kind of massive bearish call-- there could be "risk" on the upside as well if a macro catalyst presents itself. It's been really easy to sell premium and I've demonstrated quantifiably that it won't persist for much longer.

by Steven Place

Steven Place is the founder and head trader at