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The Standard and Poors 500 index (SPX) closed today at 4282, up 61 points on the day or +1.5%. SPX opened the short week at 4227, closing the week at a gain of 1.3%. For a significant change, trading volume managed to stay above the 50-day moving average (dma) all week. Is this the turn higher?
VIX, the volatility index for the S&P 500 options, opened the week at 17.6%, and closed today at 14.6%, down 17% for the week. We haven’t seen volatility this low since July of 2021.
I track the Russell 2000 index with the IWM ETF, which closed today at 182.02, up 6.4 points or 3.6% on the day. IWM opened the week at 176.7 for a 3% gain for the holiday shortened week. Normally the small cap stocks of the Russell 2000 lead bullish runs, but this index has a long way to go. IWM broke its 50 dma yesterday and broke out above the 200 dma today, but it must tack on a full 9% to return to its February highs.
The NASDAQ Composite index closed at 13,241 today, up 140 points or +1.1%. NASDAQ opened the week at 13,109, resulting in a nearly identical weekly gain of +1.0%. NASDAQ and the S&P 500 have broken their February highs, although NASDAQ is well ahead of SPX. Unlike SPX, NASDAQ’s trading volume was relatively low again this week, managing to break above its 50 dma only on Wednesday.
Price action in the markets has been choppy for the past several weeks and the broad market indices have been trapped in a sideways trading channel. The market’s attention was focused on the debt limit negotiations. The market celebrated the bipartisan deal, although the debt problem is just being kicked down the road.
I will be watching next week’s market action very carefully for any cracks in the new enthusiasm. Concerns about inflation, higher interest rates and the next bank failure may raise their ugly heads next week.
I am unsure that all is well in our economy, so I am going to be cautious about jumping on this bandwagon.
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The Standard and Poors 500 index (SPX) closed today at 4124, down seven points on the day or -0.2%. SPX opened the week at 4137, so the weekly result was similar at a loss of 0.3%. Trading volume continues to come in very low; volume ran well below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened the week at 17.7%, and closed today at 17.0%, down 4.0% for the week. This level of volatility seems high for the pattern of the price movement itself. This makes me wonder if volatility is remaining moderately high due to fear of “another shoe dropping”, whether that be another bank collapsing or an interview with a FOMC member sounding hawkish.
I track the Russell 2000 index with the IWM ETF, which closed today at 172.7, down 0.4 points or -0.2% on the day. IWM opened the week at 175.3, so the loss for the week was larger at -1.5%. IWM is trading weaker than any other broad market index, trading well below both the 50 dma and the 200 dma and its February high at 199. Some analysts attribute this weakness to a large number of small and regional banks in the Russell 2000 that are under pressure after the failure of the larger banks over the past few weeks.
The NASDAQ Composite index closed at 12,285 today, up 44 points
or +0.4%. NASDAQ opened the week at 12,232, resulting in an identical weekly gain of +0.4%. NASDAQ is the only broad market index to have broken its February high, although it barely held that level today. NASDAQ’s trading volume fell off again this week, remaining under the 50 dma all week.
I believe we are near a “fork in the road” moment. This week’s CPI and PPI reports gave us hope that the inflation growth rate may be moderating, but it is only a minor turn lower. It could easily reassert itself. Inflation concerns have been replaced with a fear of a contagious run on the banks leading to a serious recession or worse.
The price charts are generally chopping sideways, appearing indecisive about which way to go. I worry that a critical piece of bad news could trip this market into a serious fall lower. I still remember global markets pausing as they watched the Greek debt crisis unfold in 2015. Greece’s debt to GDP ratio was 125%. That is precisely where our politicians (in both parties) have left us, and, incredibly, they want to add more debt. It seems that no one wishes to get this house in order. Let’s just open another credit card!
I closed a group of profitable trades this week but didn’t replace them. This is a good time to keep your powder dry and wait for a better day.
Be patient, trade small, take profits early, and leave a large percentage of your cash on the sidelines.
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The Standard and Poors 500 index (SPX) closed yesterday at 4169, up 34 points on the day or +0.8%. SPX opened the week at 4132 for a weekly gain of 0.9%. Early in the week, we were heading for the bunker, but then it reversed course. One surprise this week was an increase in trading volume; it ran at or above the
50-day moving average (dma) for the last four trading sessions. That was encouraging.
VIX, the volatility index for the S&P 500 options, opened the week at 18.2%, rose to a peak of nearly 20% on Tuesday but then fell significantly on Thursday and Friday to close at 15.8%. One has to look back to November of 2021 to see a lower level of volatility.
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 175.2, up 1.5 points or +0.9% on the day. IWM opened the week at 177.8, so the Russell 2000 index lost 1.5% on the week. And it remains well below both its 50 dma and 200 dma.
The NASDAQ Composite index closed at 12,227 yesterday, up 84 points or +0.7%. NASDAQ opened the week at 12,053, resulting in a weekly gain of +1.4%. NASDAQ is nearing its February high of 12,270. NASDAQ’s trading volume was mixed this week and was above the 50 dma on Wednesday and Friday.
We have experienced quite a roller coaster ride this week. The market appeared locked in a sideways channel last Friday and it looked as though we might break support and head lower on Tuesday and Wednesday, but the balance of the trading this week left the S&P 500 much closer to the February high around 4200. The spike in trading volume with Friday’s strong run was encouraging. However, next week’s market will most likely slow as traders look forward to the FOMC meeting and announcement on Wednesday.
My assessment of this market and my recommendations remain unchanged from last week:
“I remain cautious in this market. A small number of stocks are weathering the storm, but prices are very volatile. Being whipsawed in and out of positions is commonplace.”
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The Standard and Poors 500 index (SPX) closed today at 4136, up 75 points on the day or +1.9%. SPX opened the week at 4167, so today’s large gain wasn’t enough to save the week from a 0.7% loss. Trading volume was bouncing around the 50-day moving average (dma) this week and came in at 2.4 billion shares today, just below the 50 dma at 2.5 billion shares
VIX, the volatility index for the S&P 500 options, opened the week at 16.4%, rose to a peak of 21.3% on Thursday but then fell significantly today to close at 17.2%. Today’s close matches the low for 2022, but Monday’s intraday low for VIX at 15.5% marks the low for both 2022 and 2023.
I track the Russell 2000 index with the IWM ETF, which closed today at 174.45, up 4.1 points or +2.4% on the day. IWM opened the week at 175, so even today’s large gap opening and strong run could not push IWM into the positive column for the week. IWM remains well below both its 50 dma and 200 dma and is almost 14% below its February high. Keep in mind that we expect the small to mid-cap stocks to lead bull markets higher.
The NASDAQ Composite index closed at 12,235 today, up 269 points
or +2.3%. NASDAQ opened the week at 12,210, resulting in a weekly gain of +0.2%. NASDAQ touched its February high of 12,270 today and pulled back a bit into the close. NASDAQ’s trading volume fell off dramatically over the last two days, closing at 3.7 billion shares today, well below the 50 dma at five billion shares.
The FOMC meeting was virtually all of the news that appeared to matter to traders this week. Wednesday’s announcement could be summed up as raising the discount rate another 25 basis points with only a hint at the Fed being prepared to end the rate hikes anytime soon. As the market waited on the fed meeting on Tuesday, the markets slid a bit and that slide continued after they read the announcement on Wednesday. After considering the news overnight, the market tumbled again yesterday, but woke up in a better mood today.
The death watch for the next banks to fail was somewhat surpassed by speculating about the FOMC this week, but the feds closed First Republic Bank on Monday and arranged its acquisition by J.P. Morgan Chase. This run on the banks is worrisome for the obvious reasons, but I am also concerned about the continuing trend of large banks becoming even larger.
The bulls do seem to be reasserting themselves, but it is hard to ignore the massive national debt while politicians in both parties refuse to make any serious attempts to get spending under control. It is difficult to imagine a bull market under these circumstances. In the meantime, the perennial "sky is falling" gurus are busy sounding the alarm.
I continue to leave a lot of capital on the sidelines and choose my trades very carefully. I close winners early just to avoid the next whipsaw in the markets.
Be patient and hedge yourself carefully.
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The Standard and Poors 500 index (SPX) closed yesterday at 4134, up four points on the day or +0.1%. SPX opened the week at 4137, essentially unchanged over the week. Note the long lower shadows on the candlesticks this week. The bulls are holding the market up but are not strong enough to push it higher. Trading volume continues to run below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 17.6%, and steadily declined to yesterday’s close at 16.8%. Implied volatility is also largely unchanged for the week.
The NASDAQ Composite index closed at 12,072 yesterday, up 13 points or +0.1%. NASDAQ opened the week at 12,108, down 0.3% for the week or effectively unchanged. The long lower shadow on yesterday’s candlestick shows the support of the bulls; they are holding back the bears but aren’t able or willing to drive it higher. NASDAQ’s trading volume continues to run below the 50 dma.
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 177.6, up 0.2 points or +0.1% on the day. IWM opened the week at 177, so the Russell 2000 index is also trading sideways, in parallel with its big brothers, SPX and NASDAQ.
The fundamentals of this market remain unchanged. We continue to have high inflation, although the last CPI and PPI reports gave us some hope of moderation. On the other hand, the Fed’s pushing interest rates higher to fight inflation is stressing the banks holding large quantities of low interest treasury bonds. These forces appear to be roughly balanced at this point and I think the sideways trading in the market is evidence of that standoff. The S&P 500 index continues to trade between well-defined support around 4100 and the February highs around 4200. Traders are watching closely for signals of a breakout up through 4200 or a break down through 4100 or even 4050.
The SPX iron condors in my Flying With The Condor™ service are working very well in this market, up 35% in 2021, up 38% last year, and up 21% thus far this year. We have added a sister product, focused on smaller accounts, trading the S&P ETF, SPY. Our May and June positions stand at +18% and +12%, respectively. Contact me if you have any questions about this new service.
I remain cautious in this market. A small number of stocks are weathering the storm, but prices are very volatile. Being whipsawed in and out of positions is commonplace. Trade small and retain a large proportion of your trading capital in cash.