In focus: Market sleepwalking into September

By Lawrence G. McMillan

The volatility of the stock market has dwindled to extremely low levels. The 20-day historical volatility of the Standard & Poor’s 500 Index is now 6% — the lowest levels since just after Christmas last year.

Prior to that, the S&P 500 hasn’t had a 20-day historical volatility that low since early 2007. In both those previous cases, the stock market worked its way higher for a while before a correction set in. Then, even after that correction, even higher prices followed. So, for those who are saying that such low volatility is dangerous, that does not appear to be true — in the short-term to intermediate term.

SPX remains in its upward bullish channel. It has resided within this channel since early June and as long as it’s in this channel, the outlook is bullish. On the short term, SPX has bottomed out several times recently just below the 1,400 level, so that represents support. If that support level should be violated, it will probably bring in a flood of short-term sellers, and the index is likely to decline into support in the 1,380-1,385 area. Below that, there is further support at the low end of the channel, just above 1,370. A violation of the 1,370 level would be negative and would change our outlook...

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