It is often humbling to write about the market and speculate on the future trends. I was amused as I thought about some positive advice I gave some clients last week. We ended this week feeling anything but happy. The Standard and Poors 500 Index (SPX) opened the week at 2670 and closed today at 2670 – no need to calculate that percent change. On Thursday, I found reassurance in SPX finding support at the 50-day moving average (dma), but that was short lived as SPX sliced through that support level this morning.

Trading volume steadily increased all week, but only reached its 50 dma today. Trading volume in the S&P 500 companies has remained below the 50 dma all month. The decline in trading volume last week as the market traded higher was disappointing. That suggested the large institutional traders were not entering the market aggressively, even though the indices were rising. Rising trading volume this week, as the market weakened, is a cautionary signal.

The Russell 2000 Index (RUT) mimicked the larger indices this week, trading higher through mid-week, but then pulling back over the last two days. The big difference is the location of RUT’s 50 dma. RUT’s 50 dma is 1543, so while RUT closed down 10 points today to close at 1564, it remains well above the 50 dma.

The NASDAQ Composite broke its 50 dma this morning, finally closing at 7146, down 92 points. NASDAQ’s trading volume has been flatter this week and remains well below its 50 dma. It may seem bizarre to say this, but I find lower trading volume as the market declined the past two days is somewhat reassuring. Higher volumes in declines indicate more panic. And that’s never good.

SPX’s volatility index, VIX, declined Monday and Tuesday, but then ticked higher the rest of the week, closing today at 16.9%. This remains relatively modest historically, but a concern nonetheless.

I cautiously opened the Apple diagonal spread in our trading group a couple of weeks ago, and that was fortunate timing as it turned out. After Taiwan Semiconductor delivered bearish views of the semiconductor market for the balance of the year, it triggered a selloff in many stocks dependent on semiconductor chips, and Apple was one of the unfortunate casualties. Apple dropped 5 points on Thursday and I closed our diagonal spread for a 39% gain. One of the advantages of a diagonal spread is the lowering of the cost basis as one rolls the short options each week. That served us well in this case, driving our cost basis from $440 to $287 over the course of the trade.

This is a perplexing market. The underlying economic data are strong, yet traders appear to be very nervous and anxious to sell on any pretext. One of the old adages about the market is that a bull market climbs a wall of worry. This market is just the opposite. It reacts strongly to any and every piece of negative news. Be careful out there. Happy days are not here again...