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The coronavirus correction hit bottom on March 23rd with a 35% loss. Over the next couple of weeks, it appeared as though we were in for another “V” shaped recovery. Around mid-April, the Standard and Poor’s 500 Index (SPX) began to establish a support level around 2745 and hit resistance at 2975 toward the end of April. We have been trapped in that sideways channel for all of May. This week’s trading further reinforced the strength of resistance at 2975.

SPX closed today at 2955 today, up 1.4% for the week, but that single data point obscures the fact that Wednesday and Thursday’s trading failed to break out above resistance. It is anyone’s guess whether we will break out or just trade sideways for some extended period of time.

VIX, the volatility index for the S&P 500 options, closed the week at 28.2% today. Even as the market has traded higher, volatility has stubbornly held up. The lesson is that we are far from being out of the woods. The trading of large institutions and hedge funds drives the volatility of the S&P 500. They are nervous, and we should pay attention.

IWM, the ETF based on the Russell 2000 group of companies, traded stronger than its big brother indices this week, closing today at 134.89, up 2.6% this week. Contrast that level of weekly growth with SPX at +1.4% and NASDAQ at +1.6%. It is bullish when the small to mid-cap stocks outperform the blue chips, but that is only one bullish sign in the midst of a nervous market.

The NASDAQ Composite index closed at 9325 today, up 40 points on the day and 1.6% for the week. Today’s close puts NASDAQ within 5% of its previous 
all-time high at 9783. The NASDAQ Composite has been the strongest broad market index during this recovery. Is that reasonable? Stocks like Apple are driving the NASDAQ higher. Will people continue buying the latest thousand dollar iPhone in the midst of a depression?

No one really has a clue as to what market level will represent a fair price for the market once we are released from this lockdown. Of course, many analysts are on all of the financial network shows claiming they have the answers, but that is the same old game. What we know with some certainty is about 30 million people have lost their jobs. Even more foreboding is the unknown number of small businesses that will not reopen. It is too early to assess the coronavirus’s collateral damage. It is becoming more apparent each day that the economic damages caused by the lockdown far outweigh the damage from coronavirus infections. In addition to lost jobs and closed businesses, we are starting to see spikes in suicides, drug overdoses, and domestic abuse. We have seen similar levels of death in previous flu seasons, but we didn’t panic and destroy the economy. Irresponsible journalism is at the heart of this national tragedy. Journalists have been replaced with reporters pushing their personal causes.

I grew up with Walter Cronkite on the CBS evening news. I never knew whether he was conservative or liberal. He just reported the news and expected responsible citizens to draw their own conclusions. We are now treated like a bunch of sheep. I will put away my soapbox and get back to making money. That topic may be more crucial than ever. Volatility remains elevated and that means options are expensive. Thus, strategies that rely on selling options will enjoy larger than normal returns. But it also means those trades are riskier than normal. Higher returns are always accompanied by higher risk, contrary to the latest TV advertisement offering a new book that promises the secret of becoming a millionaire.

Don’t forget that this is a nervous market. Place your stops aggressively. Stay calm and remain disciplined.