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The Standard and Poors 500 index (SPX) began to show signs of life on June 17th and continued that recovery through today with a increase of 116 points to close at 3912, up 3.1% for the day and 5.3% for the week. Trading volume remained close to or below the 50 day moving average (dma) until spiking much higher today, reaffirming today’s strong gap opening and large recovery push.

VIX, the volatility index for the S&P 500 options, opened this week at 31% and steadily declined to close today at 27%. However, this level of volatility is far from benign. VIX opened 2022 just under 18% and even that level was somewhat elevated compared to the VIX prior to the 35% crash in March 2020.

The NASDAQ Composite index followed the lead of the other broad market indices today, gapping open higher and continuing the bullish run, closing up 3.3% at 11,608 and up 8.5% for the week. This might have qualified for a “follow through day" to confirm the resumption of an uptrend in the IBD methodology, but the trading volume was disappointing at 4.4 billion shares, well short of the 50 dma at 5.1 billion.

The 2022 market correction now stands at significant levels:
 
·      The S&P 500 index: -24%


·      The NASDAQ Composite: -32%


·      The Russell 2000 index: -28%



The question on everyone’s mind is whether this week’s trading marks the bottom of this correction. That assumes we remain in a bullish market. Unfortunately, there is a less pleasant answer. We could be transitioning to a recession with the accompanying bear market and we are simply observing the classic lower highs and lower lows of the bearish trend.

 I was certainly of the bullish persuasion in late March as the market appeared to be recovering to return to the highs earlier in the year. Instead, the S&P 500 collapsed to new lows in early May, and then lower again in late May, and then took another step lower in mid-June.
 
I am currently almost entirely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I opened two earnings trades on FDX for the trading group subscribers yesterday and closed them for modest gains today. I remain unconvinced that the bull market has resumed. It is safer on the sidelines.

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The most recent plunge for the Standard and Poors 500 index (SPX) began on June 9th and hit an intraday low Thursday at 3640, down 24% for the year. Friday’s trading was somewhat more positive with a modest gain of eight points or 0.2%. The S&P 500 stocks ended the week with a 4.2% loss. Trading volume spiked Friday on quadruple witching.

VIX, the volatility index for the S&P 500 options, began a spike higher on June 9th at 24%, peaking on June 13th at 35%. VIX closed Friday at 31%, with volatile readings this week, but ending unchanged from Monday’s open.

I track the Russell 2000 index with the IWM ETF. IWM was modestly higher on Friday at 165.18, gaining 1.3 points or +0.8%. IWM opened the week at 173.63 for a decline of 4.9%.

The NASDAQ Composite index recovered slightly on Friday, closing at 10,798, up 152 points or 1.4% but down 1.7% for the week. Trading volume spiked Friday on quadruple witching.

Summarizing the 2022 market to date:
 
·      The S&P 500 index: -24%
·      The NASDAQ Composite: -32%
·      The Russell 2000 index: -28%

It goes without saying that the major driving forces for this correction are:
 
·      Record levels of inflation
·      Record oil prices
·      Rising interest rates
·      Fear of a recession



The Federal Open Markets Committee (FOMC, or the Fed) continued their raising of the discount rate for Federal funds, increasing it by 75 basis points on Wednesday. The size of that increase surprised the market and resulted in Thursday’s sell-off. Raising interest rates is designed to slow the economy and thus slow wage and price increases. The Fed is also selling treasury bonds and other securities in their portfolio to decrease the money supply, an additional upward pressure on interest rates.
 
Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling that represents a large number of stockholders throwing in the towel. Thursday’s low on above average trading volume may have represented that capitulation low, but that certainly wasn’t confirmed by the modest rise in the markets Friday.

I am almost entirely in cash at this point, and I am not anxious to enter any new trades. I have too many scars this year from trying to jump back into the market.

 

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The Standard and Poors 500 index (SPX) closed Friday at 4109, down 68 points on the day or -1.6%. SPX opened the week at 4151, resulting in a loss of one percent for this shortened holiday week. 
Trading volume spiked higher to open the week on Tuesday but sank far below the 50-day moving average (dma) for the rest of the week.

VIX, the volatility index for the S&P 500 options, opened Tuesday at 27% and closed Friday at 25%. This is the lowest level for VIX since the last week of April.

The NASDAQ Composite index closed at 12,013 Friday, down 304 points or 
2.5% and down one percent for the week. Trading volume spiked Tuesday but declined below 50 dma for the balance of the week.

The overall market has been very volatile this year, and the overall trend has been lower. After hitting a low of 21% on May 20th, SPX strengthened somewhat over the past two weeks to cut the loss to -14%. The principal worries for the market are record levels of inflation, rising energy prices and increasing interest rates. The last GDP estimate was negative, causing concerns about stagflation to mount. Can the Feds raise rates enough to counter inflation without cratering the economy?

Overall market trading was flat this week. Are we about to tip over into an even more severe correction? Or have we stabilized at this level? That is anyone’s guess. Last week’s trading was very bullish, but we have seen many short-lived rallies this year abruptly and painfully ended. Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.

 

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Friday’s market reminded me of the classic Monopoly game card. The Standard and Poors 500 index (SPX) collapsed Friday after the latest CPI report, losing 117 points to close at 3901, down 2.9% in one day. This culminated a disastrous week for the S&P 500 with a 5.7% loss. Support levels from the May lows are 3875 and 3801. However, trading volume remained below average all week, only touching the 50-day moving average (dma) on Friday.

VIX, the volatility index for the S&P 500 options, spiked as high as 30% on Friday and then declined to close at 28%. VIX opened the week at 25% and declined to 23% by Wednesday, but increased Thursday and Friday. The increase on Friday seemed less than I would have expected for a large gap opening lower that continued even lower with no intraday recovery.

I track the Russell 2000 index with the IWM ETF. IWM gapped open lower on Friday and lost nearly five points or 2.7%. IWM opened the week at 188.79 and closed Friday at 178.59 for a decline of 5.4%.

The NASDAQ Composite index gapped open lower Friday and closed at 11,340, down 414 points or 3.5% and down seven percent for the week. Trading volume was modest all week and only slightly above the 50 dma, even during Friday’s market collapse.

The 2022 market has been declining steadily for multiple reasons:
 
·      Record levels of inflation
·      Sharply rising energy prices
·      Rising interest rates
·      A negative Q1 GDP estimate



Overall market trading was largely constrained to a sideways trading pattern for the last couple of weeks but that dramatically changed Friday after another record setting CPI report.
 
Stagflation is the term for a period of high inflation coupled with a slow growing or even a recessionary economy. The Fed’s cure for inflation is largely constrained to raising interest rates to slow the economy and consequently slow wage and price increases. They raised rates a quarter point at their last meeting and will likely raise rates by a half point on Wednesday.
 
An additional concern is whether the current market is overpriced. The broad market indices are all substantially lower at this point. The declines in 2022 follow:
 
·      The S&P 500 index: -19%
·      The NASDAQ Composite: -28%
·      The Russell 2000 index: -20%

I consider removing 20% or more from the market indices probably trims prices to a more reasonable level. On the other hand, the price increases of consumer goods and energy are setting all-time records and we have not yet seen any softening of those prices. Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling, representing a large number of stockholders throwing in the towel. We have not seen that volume spike as yet. It could get worse before it gets better.

Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.

 

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Fridays are becoming the most exciting days in the market. The Standard and Poors 500 index (SPX) opened today at 3927 and traded higher for about 30 minutes before starting a steady decline to a low of 3810 around 1:30 PM ET. But then the bulls took over and drove the market into the close at 3901, essentially a flat day from Thursday’s close. What a ride! 

The end result for the week was a 2.8% decline in SPX. The intraday low today updates the correction to 21% since the January 4th open. Trading volume rose steadily all week and moved above the 50-day moving average (dma) for the last three days of the week.

VIX, the volatility index for the S&P 500 options, opened this week at 30%. I found it interesting that Wednesday’s rout of the market only spiked VIX to 31%. Thursday and Friday both saw intraday spikes up to 33%, but VIX settled down to 29% today. This certainly isn’t a low level of volatility, but it is lower than one would have expected for the significant decline we witnessed Wednesday. The large institutional players are not as spooked by this market as I am.

The NASDAQ Composite index closed at 11,355 today, down 34 points or 
0.3% today but down 3.2% for the week. Note how the intraday low was very close to the low last Thursday. Is NASDAQ finding support? Trading volume only reached the 50 dma today.

The overall market has been very volatile this year, but the overall trend has been lower. The Ukraine crisis, record levels of inflation, rising energy prices and increasing federal debt are some of the worries keeping traders up at night. Soon after we began to see inflation getting out of hand, a new worry appeared: the prospect of the feds raising interest rates to slow the economy and counter inflation, but perhaps risking a recession in the process.

Traders find themselves coping with two somewhat opposed issues: run away inflation and rising interest rates. We don’t want inflation to get out of control, but we also fear that the FOMC may raise rates too far and/or too fast and the economy will be effectively shut down.



One interesting recent price pattern is common to S&P 500, NASDAQ and the Russell 2000 indices this week. All of these indices rallied off intraday lows on May 12th. Again, all of these indices posted intraday lows today that were close to the intraday lows of May 12th. That may be a sign of the market stabilizing and finding support. The S&P 500 is off 21%; the NASDAQ Composite is off 30%; the Russell 2000 is off 25%. Do the current prices represent good value? One could argue that today’s recovery from intraday lows suggests that traders are starting to bargain hunt. But we have seen that before. Stay cautious. The second mouse gets the cheese. Let the market prices show us the way.

We don’t have solid answers to these questions today. Until we have those answers, we should remain largely in cash. Trade small if you trade at all.