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The Standard and Poors 500 index (SPX) closed today at 5,408, down 95 points or -1.7%. SPX opened the week at 5,624, closing down 3.8% for the week. Trading volume was above the 50-day moving average (dma) Tuesday and Friday but below average on Wednesday and Thursday.
VIX, the volatility index for the S&P 500 options, closed today at 22.4%, up 2.5 points. VIX opened Tuesday at 15.8% and spiked up over 20% and stayed in that neighborhood the balance of the week.
I track the Russell 2000 index with the IWM ETF, which closed today at 208, down four points or -1.9%. IWM was down almost five percent this week.
The NASDAQ Composite index closed today at 16,691, down 437 points or
-2.6%. NASDAQ opened the week at 17,585, setting up a weekly loss of 5%. NASDAQ’s trading volume remained at or below the 50 dma all week.
I often make the mistake of looking for rational explanations for the market moves. When SPX dropped significantly earlier this week, the explanation by the talking heads was that the ADP private payrolls number at 99k was “below expectations”. Today’s explanation was that the jobs report at 142k jobs, up from last month’s 89k was “weak”. Last month was weak; this month was up.
Last week, I relayed the Stock Trader’s Almanac citation to you that September is historically the weakest month of the year for the stock market. Maybe I should have paid attention.
Today’s market decline seemed extreme to me. In particular, if one watched the SPX one minute chart today, it was uniformly down all day. That is unusual; normally, there is an ongoing tug of war with several ups and downs.
Based on my assumption of an extreme in trading today, I held several positions. We’ll see if that was a mistake.
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The Standard and Poors 500 index (SPX) closed today at 5,648, up 56 points or 1%. SPX opened the week at 5,640, closing almost flat for the week at +0.1%. Trading volume remained below the 50-day moving average (dma) all week, but spiked up above the average today.
VIX, the volatility index for the S&P 500 options, opened on Monday at 16.3%, and steadily declined to today’s close at 15.0%. That level for VIX remains a couple of points higher than before the correction.
I track the Russell 2000 index with the IWM ETF, which closed today at 220, up 1.3 points or +0.6%. IWM was down almost one percent this week.
The NASDAQ Composite index closed today at 17,714, up 197 points or 1.1%. NASDAQ opened the week at 17,868, setting up a weekly loss of 0.9%. NASDAQ’s trading volume remained at or below the 50 dma most of the week and fell even further today, probably a pre-holiday decline.
It seemed like the general expectation for the FOMC last week was for a rate cut at the September meeting. However, that consensus shifted a bit this week and that cooled the attitude of the bulls, holding increases to a minimum.
The Stock Trader’s Almanac cites September as historically the weakest month of the year for the stock market. Maybe this flat week is just the beginning. The FOMC meeting will probably set the pace for September.
Our QQQ iron condor is doing well, as one might expect for a sideways market. I gave it plenty of room so we can tolerate moderate moves in either direction. So far, that position is up 18%.
It pays to be selective and cautious in this market.
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The Standard and Poors 500 index (SPX) closed today at 5,344, up 25 points or 0.5%. SPX opened the week at 5,151, setting up a weekly gain of 3.7%. Trading volume spiked on Monday but then declined all week, ending the week at 2.1 billion shares, well below the 50-day moving average (dma) at 2.7 billion shares.
VIX, the volatility index for the S&P 500 options, gave us a wild ride this week, opening Monday at 23.4%, spiking to 66% and then steadily declining to today’s close at 20.4%. It certainly appears as though the market panicked on Monday and then steadily realized that nothing much had changed.
I track the Russell 2000 index with the IWM ETF, which closed today at 206, almost unchanged, down 0.4 points or -0.2%. IWM remains below its 50 dma.
The NASDAQ Composite index closed today at 16,745, up 85 points or 0.5%. NASDAQ opened the week at 15,713, setting up a strong weekly gain of 6.6%. After spiking higher on Monday, NASDAQ’s trading volume declined to the 50 dma for the rest of the week.
Many of us, including me, had not heard of the Sahm Rule before last Friday. Claudia Sahm is currently the chief economist with New Century Advisors and once held a senior position with the Federal Reserve Board. The rule attributed to her states that a recession is underway when the three-month average of the unemployment rate increases more than 0.50% in one year. On Monday, the signal triggered at 0.53% and the market panicked. The S&P 500 dropped 228 points or 4.3%.
In many ways, the market was set up for this dark prediction because most analysts were disappointed the FOMC did not reduce rates on July 31 and feared the Fed was leading us to a classic “hard landing”. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower last Friday and then repeated that performance again on Monday. The lows on Monday had the S&P 500 at -10%, NASDAQ at -16% and the Russell 2000 at -12%.
It would be premature to declare the market correction is over, but the recovery this week has been significant with the S&P 500 at +3.0%, NASDAQ at +3.4% and the Russell 2000 at +2.0%. The decline in trading volume is another positive sign.
I have found Investors Business Daily’s Follow Through Day methodology very helpful for determining when it is safe to begin reinvesting in the market after a correction. For the time being, we remain largely in cash. Corrections often retest the initial lows. It is prudent to not jump back in too quickly.
For now, I am watching for the Follow Through Day signal. Be patient.
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The Standard and Poors 500 index (SPX) closed today at 5,554, up 11 points or 0.2%. SPX opened the week at 5,352, setting up a weekly gain of 3.8%. Trading volume remained below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened on Monday at 20.8%, and steadily declined to today’s close at 14.8%. That level for VIX remains a couple of points higher than before the correction.
I track the Russell 2000 index with the IWM ETF, which closed today at 213, up 0.6 points or +0.3%. IWM gained 2.9% this week.
The NASDAQ Composite index closed today at 17,632, up 37 points or 0.2%. NASDAQ opened the week at 16,794, setting up a strong weekly gain of 5.0%. In spite of a strong week, NASDAQ’s trading volume remained below the 50 dma all week.
The Tale of Two Cities starts out with the famous line, “It was the best of times, it was the worst of times”. In the markets, last week was the worst of times and this week has been the best of times. What a contrast.
One could suggest the market had a temper tantrum over its disappointment with the FOMC not lowering the discount rate at the last meeting and got over it this week. It makes me wonder what will happen on September 18 if the FOMC decides to wait to lower rates. At least one of the committee’s members has already voiced his opinion that it would be prudent to wait for more data to confirm a decline in the rate of inflation before lowering rates. It is interesting that the Stock Trader’s Almanac cites September as historically the weakest month of the year for the stock market. That could make for an ugly coincidence of two trends.
Investors Business Daily’s Follow Through Day methodology has been very helpful for determining when it is safe to begin reinvesting in the market after a correction. But IBD appears to be breaking their own rules for this correction. IBD declared 8/15 as the Follow Through Day, even though the trading volumes on both SPX and NASDAQ were below average. Corrections often retest the initial lows. I wonder if IBD has jumped too soon.
Our GS vertical spread was typical of my attitude in this market. I was only in the spread for two days. When it gave me a 21% gain, I took my profits and ran for cover.
I remain very cautious.
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The Standard and Poors 500 index (SPX) closed today at 5,347, down 100 points or -1.8%. SPX opened the week at 5477, setting up a weekly loss of 2.4%. Trading volume ran above the 50-day moving average (dma) for the last four days of this week. SPX set its recent high at 5670 on 7/16 and today’s close results in a pullback of 5.7%.
VIX, the volatility index for the S&P 500 options, closed today at 23.4% with an intraday high of 29.7%. VIX opened the week at 16.6% and rose as high as 18.5% during the week but spiked up significantly today.
I track the Russell 2000 index with the IWM ETF, which closed today at 209, down 8 points or -3.5%. IWM set its most recent high at 225 on 7/16, leading to a pullback of 7.1% to date.
The NASDAQ Composite index closed today at 16,776, down 418 points or
-2.4%. NASDAQ opened the week at 17,332, setting up a weekly loss of 3.2%. From NASDAQ’s opening high on 7/11, this index has now corrected by 10%. NASDAQ’s trading volume rose above the 50 dma for the last three days of this week.
Traders were hoping for a reduction of the federal discount rate at the FOMC meeting on July 30-31. Markets traded higher after the FOMC announcement on 1/31, but the mood changed after further reflection and the markets traded off significantly over the past two days. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower today for large losses.
Trading analysts have traditionally referred to market declines as pullbacks until they reach ten percent, where the term, correction, is employed.
The S&P 500 index broke down through its 50 dma today; the NASDAQ Composite broke through its 50 dma on Wednesday of last week, and the Russell 2000 index found support at its 50 dma today.
Corrections come in different sizes. The correction of February of 2018 was 12%; December 2018 was 20% and the correction in March 2020 was 35% (all measured with the S&P 500 index). It is impossible to predict the severity of this pullback.
The only trades that remain open in my accounts are in the Conservative Income service and my long-term portfolio. Outside of those accounts, it is interesting that my only gains this week were for three earnings announcement trades in the trading group and two trades in the Zero DTE trading service. The irony is that those trades represent the riskier trades of my repertoire. What they have in common is a very short duration.
I think this is a good time to be largely in cash.
