As you probably already know, the reason we focus on iron condors is that they are a non-directional options strategy, which means we don’t have to be right about whether the market will go up or down in a given month in order to make money.

Nevertheless, it’s interesting and worthwhile to pay attention to market action, especially when it comes to possible turning points in market sentiment and trends. We’re at just such a potential turning point this week. If the churning action of the last few trading days continues, we may see the end of the roaring trend that has followed the major correction in late February.

This chart provides a couple of interesting signals:

• The SPX has been riding a major trendline since its recent bottom on March 14. That trendline seems to have been violated, and the price action of the next few days should prove important for suggesting whether markets will resume their recent bullishness, or transition to some other prevailing sentiment.
• Volume has been increasing on down days, and decreasing during rallies. The On Balance Volume reading has stalled, and if a downturn develops there that will be a bearish signal.
• The ADX indicator is extremely near a signal that we may be leaving a trending market and entering a range-bound market. The interesting thing about the ADX indicator, if you’re not familiar with it, is that it doesn’t signal bearish or bullish trends, but rather measures the likelihood of trending vs. non-trending markets.

Along with the other signals and charting methods we use to determine entry points for trades, these data points suggest that a change in market sentiment may be upon us. As said above, the action this week should be telling.

Impact

A sentiment change, especially if it is a change toward a range-bound rather than trending market, could be very advantageous for us. It is much easier to trade iron condors during range-bound markets, since there is a decreased chance of seeing your short calls/puts violated and having to exit the trade early or even take a loss. Although we will take whatever opportunities the markets give us, including a resumed bullish trend, some moderation in market sentiment will make our trades even more successful.

We will be entering new trades as market action dictates, although of course these are strictly for our members.

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