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This market turns on a dime and often very unpredictably. I call this price volatility, not to be confused with implied volatility, a different animal. I believe price volatility is largely caused by uncertainty with several different issues worrying traders simultaneously. We see the effects on the market nearly every week. Last week, the Standard and Poor’s 500 Index (SPX) was on a strong bullish run, gapping open higher three days in succession. SPX began this week with a nice gain, but then it fell out of bed. Thursday opened lower and seemed to be poised to continue the trend, but it reversed and booked a significant recovery for the week thus far. But that couldn’t hold; today’s trading was disappointing.

SPX closed today at 3484, up less than a point, and down about one half of one percent for the week. The most negative aspect of today’s trading was the fact that SPX could not hold the early high today at 3516. Trading volume for the S&P 500 companies continues to largely track below average, and those lower trading volume levels warn us that any bullishness we observe may be short-lived.

The volatility index for the S&P 500 options, VIX, opened the week at 26%, and closed today at 27.4%. VIX hit its high for the week intraday on Thursday at 29%. These are relatively high levels of volatility historically, even though we are probably becoming accustomed to them this year.

IWM, the ETF based on the Russell 2000 group of companies, has surprisingly outperformed its big brothers this week. Today’s close at 162.35 is very close to its recent high of 164.24 on Monday. The Russell 2000 companies are small to mid-capitalization stocks that tend to lead bull markets higher and bear markets lower. Seeing the Russell 2000 index outperforming the S&P 500 is a bullish signal.

The NASDAQ Composite index closed today at 11,672 for a gain of 42 points or 0.4%. But NASDAQ ended the week down by 0.5%. NASDAQ’s trading volume declined steadily all week - uninspiring. Is the bloom off the NASDAQ stocks?

The Russell 2000 companies have been trading more strongly than the large-cap indices for the past couple of weeks. This week, small to mid-cap stocks are signaling bullish support simply by resisting the downward pressure that is more obvious in SPX and NASDAQ. IWM, the ETF composed of the Russell 2000 stocks, remains very close to the high it set on Monday. IWM never did recover its pre-correction high, but it has been trading relatively more strongly for the past three weeks. That is a good sign for the overall market, but beware. This is a market full of nervous traders. The least rumor will cause them to hit the sell button. Be careful that you don’t get in the way of these elephants as they panic in the rush to protect their gains.

Remain vigilant. This price volatility isn’t going away anytime soon.

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Think of everything this country has dealt with this year: Covid-19, the economic shutdown, riots and looting in our major cities, record setting levels of political rancor, and finally, our President testing positive for Covid-19. Then look at the Standard and Poor’s 500 Index (SPX) price chart below. SPX gapped open higher Thursday morning and then repeated that performance Friday morning. I’m glad but it is truly hard to believe. SPX closed Friday at 3477, up 30 points on Friday and up 3.3% for the week. In light of everything that is going on, this is very surprising to me. Trading volume for the S&P 500 companies continues to largely track below average, and those lower trading volume levels on Thursday and Friday warn us not to get too far out over our skis.

The volatility index for the S&P 500 options, VIX, opened the week at 29.5%, and closed Friday at 25.0%. That 25% level served as support through most of September and I would remind all of us that 25% is a pretty high level of volatility. It is easy to become accustomed to these higher levels of volatility and become complacent.

IWM, the ETF based on the Russell 2000 group of companies, turned in an extremely bullish move this week, closing at 162.70, up nearly 5% this week alone. IWM gapped opened both Thursday and Friday mornings. The Russell 2000 companies are small to mid-capitalization stocks that tend to lead bull markets higher and bear markets lower. This is the second week that IWM has outperformed the S&P 500 – a strong bullish signal.

The NASDAQ Composite index closed yesterday at 11,580 for a gain of 159 points or 1.4%. NASDAQ outperformed SPX this week, gaining 3.7% with two opening price gaps higher on Thursday and Friday. But even NASDAQ couldn’t match IWM’s gains. Similar to SPX, NASDAQ trading volume continues to generally track below the 50-day moving average.

This is the second week that the Russell 2000 companies have outperformed SPX and NASDAQ. These small to mid-cap stocks are signaling “risk on”. I restate my conclusion from last week: this market has strong bullish support. However, volatility levels remain elevated and are effectively warning us to be cautious. If you are able to accept moderate levels of risk, there are several solid blue chip stocks like FDX, COST, DE, and AAPL that are trending favorably. But watch your positions carefully.

Remain vigilant. This volatility isn’t going away anytime soon.

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The Standard and Poor’s 500 Index (SPX) closed yesterday at 3298, up 52 points or +1.6%. That sounds great if we stop there, but SPX barely recovered Monday’s opening at 3286, so we were only up 0.4% for the week. Of course, we should be thankful for that. With all of the turmoil going on in this country, market volatility is to be expected. The June 8th high at 3232 provided support on Wednesday, and Thursday and Friday’s trading built on that base. However, we have yet to recover the 50-day moving average (dma) that was broken last week. The S&P 500 is now trading in a channel defined by the June high on the lower edge and the February 
pre-correction high on the upper edge. Trading volume for the S&P 500 companies opened the week above the 50 dma, but remained below average all week.

The volatility index for the S&P 500 options, VIX, opened the week at 28%, and closed Friday at 26%. It would be a mistake to count this decline as encouraging. Traders remain nervous and poised over the sell button.

IWM, the ETF based on the Russell 2000 group of companies, succumbed to the bearish pressure this week, closing up 1.6% at 146.41 on Friday, but remained down 1.9% for the week. The small to mid-cap stocks of the Russell 2000 are often the first to be sold in a bear market and the first to be bought in a bull market. Hence this week’s trading is a concern. IWM never did recover its 
pre-correction high.

The NASDAQ Composite index closed yesterday at 10,914 for a gain of 241 points or 2.3%. Even more positively, NASDAQ was up 2.9% for the week. It has not recovered its 50 dma, broken last week, but it is only 111 points away and remains 1,097 points above its pre-correction high at 9817. NASDAQ trading volume was at or below the 50 day moving average all week.

Markets hate uncertainty and is being fueld by the coronavirus epidemic, economic shutdowns, political turmoil, rioting and looting in our large cities. The market reflects those anxieties. This market is volatile and very nervous. Trading this week supports the thesis that we aren’t seeing the beginning of a bear market trend. Bullish support continues to hold support. NASDAQ remains well above its pre-correction high. Thursday and Friday’s market strength is encouraging. However, the light we think we see may be the train coming at us.

Remain vigilant and largely in cash.

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We have been dealing with higher than normal levels of volatility in the market all year: Covid-19, the economic shutdown, riots and looting in our major cities, and record setting levels of political rancor. Then we learn that the President has tested positive for Covid-19 and market volatility popped up even more on Friday.

The Standard and Poor’s 500 Index (SPX) closed yesterday at 3348, down 32 points or just under 1%. SPX had traded higher until the news about President Trump hit Friday and we gave back most of those gains, closing the week essentially flat, up 0.4%. With the exception of Wednesday, trading volume for the S&P 500 companies remained below average all week. Lower trading volume on Friday was actually good news, suggesting the market wasn’t too concerned about the news about the President.

The volatility index for the S&P 500 options, VIX, opened the week at 27.2%, and was pretty steady and somewhat lower until Friday when it spiked up to 28% on the news about the President. But VIX calmed a bit and closed at 27.6% Friday.

IWM, the ETF based on the Russell 2000 group of companies, had a much better week than the other large-cap market indices, opening the week at 148.37 and closing Friday at 152.85, up 4.48 points or 3% for the week. The Russell 2000 companies are small to mid-capitalization stocks that tend to lead bull markets higher and bear markets lower. The fact that IWM could tack on 3% in a week when the S&P 500 only managed less than one half of one percent is a notable bullish sign.

The NASDAQ Composite index closed yesterday at 11,075 for a loss of 251 points or 2.2%. Unlike the Russell 2000, NASDAQ was essentially flat for the week, opening at 11,084 and closing at 11,075, down 0.08% for the week. With the exception of Wednesday, NASDAQ trading volume was at or below the 50-day moving average all week. It is worth noting that trading volume was barely below the 50 dma on Friday after the bad news hit the market.

The news that President Trump had contracted Covid-19 was certainly a scary event for the country, and especially on top of all of the other turmoil. However, I take some comfort from the market’s reaction Friday. Losses on the large blue-chip market indices were minimal and trading volume was below average. Traders didn't hit the panic button.

The Russell 2000 companies traded higher all week and had a strong day on Friday, gaining almost a half of one percent on Friday alone. Those small to mid-cap stocks are the stocks we watch to see if we are going over the cliff. They are the canaries in the coal mine. The opposite is also true. These are the so-called “risk on” stocks.

All of these measures support the thesis that the market still has strong bullish support. But the market consensus is also very anxious and concerned. If you are able to accept moderate levels of risk, there are opportunities out there. But scale back on the amount of capital at risk in your trades and stop them out quickly.

Remain vigilant. This volatility isn’t going away anytime soon.

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The Standard and Poor’s 500 Index (SPX) closed yesterday at 3319, down 38 points or 1.1%. SPX lost 1.3% of its value over the week. The 50-day moving average (dma) provided support to the sell-off that started last week until yesterday when the index broke through the 50 dma at 3343. I wondered last week whether this was just a temporary step on an overall trend lower, or part of a sideways cooling off period. Friday’s break of the 50 dma along is evidence on the side of a more significant pull back.

Trading volume for the S&P 500 companies spiked up significantly on Friday. Normally I would interpret that as reinforcement of the drop of the index and the break of the 50 dma. However, Friday was what is known as quadruple witching, the expiration of stock index futures, stock index options, stock options, and single stock futures on the same day. This occurs on the third Friday of March, June, September, and December and always contributes to higher volatility and wild market swings. Perhaps that gives us hope for a bounce on Monday. Perhaps not.

The volatility index for the S&P 500 options, VIX, opened the week at 25.9%, declined to low of 24.8% on Wednesday and closed the week at 25.8%. All in all, volatility remains steady and moderately high. Traders are nervous and on guard.

IWM, the ETF based on the Russell 2000 group of companies, has managed to continue to trade along its 50 dma all week, closing down 0.4 points on Friday at 153.29. That represented an increase of 1.8% for the week, quite an accomplishment for this week.

The NASDAQ Composite index closed yesterday at 10793 for a loss of 117 points or 1.1%. However, NASDAQ was down 2% for the week, breaking the 50 dma on Thursday and confirming that break of support on Friday.
NASDAQ trading volume was below average all week and spiked on Friday due to quadruple witching, so we should not read too much into that volume spike.

Markets hate uncertainty and we are in the most turbulent times of my lifetime. The coronavirus epidemic, economic shutdowns, political turmoil, rioting and looting in our large cities are featured on every newscast. It is a challenge to remain even marginally optimistic. The market reflects those anxieties. This market is volatile and very nervous.

If you can’t watch it throughout the day, you would be well advised to stay largely in cash and wait on the sidelines. There is nothing wrong with taking a pass right now.