The SPX 500 is entrenched in a thick range here, circa 800-920. There is a mini-range within the scope that includes 820-860. Like a tightly wound spring, it's bound to push in some direction soon. Which way is anyone's guess of course, but it'll probably be a powerful move. Catalysts are there for both sides: bulls tell us new leadership is going to push us higher, the bottom is in place and the worst is behind us. The bears tell us that financials are a mess, the stimulus won't work, the consumer is tapped out and another leg down is imminent. The tug o' war is becoming quite a battle.

Volatility is telling us what?

It's really a calmer market out there, well..relatively speaking. Two years ago if I were to tell you that a VIX in the low 40's would indicate a calmer environment, you would laugh your head off. That seems to be what we have though. The extreme levels of fear from just a few months ago have worked to knock investors and traders out of the market, leaving a barren landscape of scalpers, gamblers and watchers. Oh sure, you have the serial 'bottomcallers' saying to get in now, bargain of the century, once in a lifetime chance. Until the trend develops it's best to watch and wait.

S&P 500 Index Daily Chart


Bonds are telling us what?

In striking fashion, bonds have been selling off of late, telling us the appetite for risk may be returning. What am I talking about? Equities are riskier than bonds, and if yields are rising then players see the returns of stocks being much more attractive, at least for the time being. That sentiment is not 'fly by night', rather it is something that long term holders will do. Keep an eye on the long end of the curve as rates start to jump. Inflation may actually start to become a concern.

I'm telling you what?

To be cautious and not too aggressive. It's a tough environment that is not likely to get much better soon, so be aware and on your toes for a shift in sentiment. This is an emotional market and is best navigated defensively. Bombs are dropped each day (good and bad), indicated by the VIX and the constant swings. A strategy of buy/write calls and puts allows you to stay in the game but to also manage your risk effectively.

Price Headley is the founder and chief analyst of BigTrends.com.