The US stock indices finished strong, with the S&P and NASDAQ hitting new record highs. The Dow industrial average came close to its own record earlier in the week but dipped slightly. All three major indices showed growth over the week. Here’s a quick overview: – **Dow:** Up by 208.01 points (0.47%) to close at 44,901.92 – **S&P:** Up by 25.29 points (0.40%) to close at 6,388.64 – **NASDAQ:** Up by 50.36 points (0.24%) to close at 21,108.32 – **Russell 2000:** Up by 8.93 points (0.40%) to close at 2,261.06

Weekly Growth Analysis

During the week, all indices grew, with the S&P leading the way. Here are the overall increases: – **Dow:** +1.26% – **S&P:** +1.46% – **NASDAQ:** +1.02% – **Russell 2000:** +0.94% According to Michalowski, with recent records being set, the market’s trend appears to be upward for now. Derivative traders should think about strategies that benefit from a continued, though possibly slower, upward trend. This means looking for options that profit from rising prices or stable market conditions. Supporting this outlook, the latest Consumer Price Index (CPI) for May was lower than expected at a 3.3% annual rate, calming inflation worries. The CME FedWatch Tool indicates over a 60% chance of a Federal Reserve rate cut by September, which benefits stock prices and supports a positive market outlook. For this reason, selling out-of-the-money put credit spreads on the S&P index might be a solid strategy to earn premium income. The CBOE Volatility Index (VIX) is low at around 12, making options relatively inexpensive. This strategy takes advantage of time decay in an upward-moving market. We recommend targeting strikes significantly below the current market level for added safety.

Market Breadth Concerns

Despite the positive trends, there are signs of weakness underneath. Market breadth is an issue, as less than 50% of S&P 500 stocks are trading above their 50-day moving average, even though the index is reaching new heights. This suggests that the gains are mainly driven by a small group of large-cap stocks. This narrow support makes the market vulnerable to quick pullbacks if any major stock stumbles. Because of this, we recommend buying protective puts on the Russell 2000, which consists of smaller companies that have underperformed the broader market and may react more sharply to economic downturns. Historically, August and September often see more volatility and market struggles. With the S&P 500’s forward price-to-earnings ratio over 21, traders should brace for a possible seasonal pullback. Holding some bearish positions can provide a low-cost hedge against this risk. Create your live VT Markets account and start trading now.

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