Last week, we alerted you to the work of one of our favorite mainstream market analysts, John Hussman. He has been advocating a well-hedged and cautious approach to the markets for some time now, and given last week’s action, it seems there has never been a better time to get market neutral.

Of course, the whole point of our Iron Condor Strategy is to defy the myth that you have to predict market directions in order to make good money; and since iron condors are by definition a market neutral trade, we never have to worry about being inadequately hedged against market underperformance.

In this week’s comment, Hussman practically makes our case for us:

Probably the most useful guidance is to say that the probable return to market risk is sufficiently below Treasury bill yields to warrant a fully hedged position, but for risk management purposes, it’s never a good idea to rule out an advance. Overall, investors should not position their investment portfolios in ways that would have the effect of relying on a market decline or a market advance.

“Positioning ourselves to never rely on a market decline or a market advance” - while that’s not a very catchy slogan, it describes perfectly what our strategy is all about.

On the S&P 500 ETF (SPY) chart above, the trendline that developed from March through May is clearly broken, as the price no longer hovers between the middle and top of its Bollinger Bands, but rather has bounced around in a range since the beginning of June. The very low ADX reading also signals that range-bound conditions may prevail for some time.

Our market outlook is very weak. Stocks in general look overbought, both in technical terms and in terms of fundamental valuations. Internal breadth, price trends, and higher sustained volatility all suggest that even if we are not entering a new period of significant market weakness, the bullish party may be well over.

And as you know, when one party ends, there’s usually another beginning somewhere else…