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The Standard and Poor’s 500 Index (SPX) closed Friday at 2305, down 8.1% for the week. Wednesday’s intraday low at 2281 for a correction of 33% is the low thus far. It was encouraging to see the intraday lows on Thursday and Friday did not break that correction low. Of course, you may recall my hope that last Thursday’s low was the capitulation, but that wasn’t the case. Trading volume for the S&P 500 companies has remained well above the 50-day moving average (dma) since this correction began and set a new high on Friday with 5.3 billion shares. That record high volume together with a low closing index value suggests capitulation. But the media are working overtime to keep the hysteria going.

VIX, the volatility index for the S&P 500 options, opened the week at 58 and closed the week at 66%. But that ignores some extreme volatility during the week, with intraday highs of 85.5% on Wednesday and 84.3% on Thursday. Friday’s range in VIX was huge with a high at 70%, a low at 57% and a close at 66%. VIX remains at very high levels, but it seems that the extremes of 80% plus may be behind us. VIX hit its record high of 89.5% on October 24th, 2008.

IWM, the ETF based on the Russell 2000 group of small to mid-cap stocks, closed Friday at 101.40 for a weekly loss of 6.6%. The intraday low on Thursday at 95.69 represented a 43% correction from the recent high on February 20th. All of the broad market indices posted gains on Thursday, but IWM gave back the least on Friday. The relative strength of the Russell 200 stocks is encouraging.

The NASDAQ Composite index closed Friday at 6880 for a weekly loss of 6.9%. NASDAQ’s low on Wednesday set this index’s correction at 32%. Like the other broad market indices, NASDAQ posted gains this past Thursday but gave it all back on Friday. The only good news is that the lows set Wednesday weren’t broken. Trading volume was above average all week and popped up to 4.8 billion shares on Friday.

The source of this severe market correction is not the usual economic cycle downturn or the crashing of a housing or dot com bubble. This correction is the result of the coronavirus pandemic. The latest CDC update of March 20th reports a total of 15,219 coronavirus infections and 201 deaths in the U.S. At the same time, CDC reports over 
twenty-three thousand people have died during this flu season and this year is tracking to be much less lethal than last year’s flu season, which claimed 80,000 lives.
 
The media have created and fueled the coronavirus panic. Many are using this crisis to further their political ambitions and the media are happy anytime they have the opportunity to create sensational headlines. The true tragedy is not the number of people who are and will be afflicted with this latest viral epidemic. It is the far greater number of people who are losing their jobs and income, plus losing significant portions of their retirement assets in 401k and IRA accounts. The so-called journalists who are irresponsibly creating the panic are among the wealthiest of Americans. This crisis won’t affect them.

The damage is done. Let’s concentrate on optimizing our market posture. It is too early to proclaim any good news, but we can take some comfort in the fact that the lows posted for all of the broad market indices remained unbroken on Friday. The correction high for VIX, the S&P 500 volatility index, was 85.5% and VIX closed Friday at 66.0%. The peaking of volatility is a tentatively positive sign, even though a VIX reading of 66% is certainly not encouraging.

In the meantime, be extremely picky with your trades. When I saw VIX getting very close to the 2008 high, I sold the VIX Apr 85/90 call spread. This is certainly a speculative trade, so I entered it in relatively small volume. Begin to build a watch list of solid stocks that have handled this correction reasonably well. For example, focus on stocks where the 50 dma remains above the 200 dma, and the stock price is above the 200 dma. The following stocks not only met those criteria, but the current stock price remains above the 50 dma: CHWY, CLX, CTXS, GSX, NET, REGN, and ZM. Be cautious about entering positions with these stocks now; see what next week brings. When you do decide to pull the trigger, trade small.

Stay calm and be disciplined.