Our S&P indicator has continued from its already positive reading. In fact the last time the weekly indicator was as high as today was toward the beginning of 2016, which was a very good time to be in stocks. A further decline in the VIX Index would slightly weaken the numbers, but more than that the VIX would have to change for the indicator to reverse gears. Our execution of the trades was terrible as we initiated positions just before a big daily fall, but, fortunately the numbers suggest that we have enough time to make up for the initially poor timing.

A choppy market for the rest of August is certainly possible. While the effects on our indicators are tough to anticipate, it is likely that choppiness would strengthen VIX and that would be positive.

We have been looking to add a third position to our option portfolio. The biggest change among the indicators, one which we alluded to last week, is in the oil patch. Our indicator for oil stocks is positive. The indicator for oil is also positive, but not as close to a buy signal as is the one for oil stocks. Earlier today, we took action.

We recommended the Suncor Energy (NYSE: SU) January 19, 2018 $32 call option. Were we just trading one position at a time, a put option on gold (our gold indicator is currently negative) would be under high consideration but with two stock related positions a negative bet on gold would further concentrate our portfolio in that an out of the blue political event could weaken stocks and strengthen gold.

Also, our indicator for silver bullion is not negative. In fact, it is on the positive side of neutral. Generally, we like to have confirmation across the precious before initiating a trade. One reason, we think, for the divergence between gold and silver is that while gold is a monetary metal, in fact a currency, silver has a dual identity as both a monetary and industrial metal. We do keep an indicator for base metals, which is bullish, but a trade in this area would further concentrate our portfolio.

Finally, there are bonds, which remain in positive territory and close to a buy signal. It is somewhat anomalous to see our bond indicator so positive in the context of positive readings for both stocks and commodities. The message seems to be that the Fed is going to remain on hold even if commodities continue to rise. As I have argued in past updates, I think this makes sense. Commodity-led inflation would be a terrible reason to tighten credit as the lower part of income curve would bear the brunt of rising commodities. Rising commodities in conjunction with a tighter Fed is exactly the mistake that the Fed made in 2008. I am quite sure they do not want a repeat performance.