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One of the first principles taught to beginning stock traders for reading charts is “Higher highs and higher lows form an uptrend and lower highs and lower lows form a down trend”. Ever since the fed announcement last week, traders watched the chart to see if the June lows would be broken. Until about 1:30 pm ET today, it appeared that the Standard and Poors 500 index (SPX) was finding support at the June lows around 3640, but then it broke down and steadily declined into the close. SPX closed at 3586, down 55 points or -1.5% on the day and down 2.6% this week. SPX declined 8.9% in September. As one might expect on a dramatic break lower, trading volume spiked to 3.5 billion shares, well above the 50-day moving average (dma) at 2.3 billion shares.

VIX, the volatility index for the S&P 500 options, opened and closed today at 31.6%. The range was unusually large with a low at 29.4% and a high at 33.3%. This suggests that the decline late this afternoon didn’t panic the traders. Perhaps the large institutional traders were already adequately hedged.

I track the Russell 2000 index with the IWM ETF. IWM’s trading pattern differed from the S&P 500 in that it essentially traded sideways all week (down 0.3%) and never reached its June low. IWM closed today at 164.92, down 1.21 or -0.7%. The Russell 2000 normally leads the market lower in a correction, so today’s trading was a bit of a surprise.

The NASDAQ Composite index followed the S&P 500’s decline this afternoon but NASDAQ didn’t break its June low and didn’t spike its trading volume. NASDAQ closed at 10,576, down 162 points or 1.5% on the day and down 2.4% for the week. NASDAQ’s trading volume was at or below the 50 dma all week. The selling pressure in the NASDAQ stocks was much stronger earlier this year but it appears the sentiment has shifted.

The market gave every indication this week that it was finding support at the June lows. At first blush, this afternoon’s late decline appeared to break that support level, at least on the S&P 500 stocks. But SPX’s implied volatility was unchanged on the day – interesting. I would have expected it to spike higher with the selling pressure this afternoon. Both NASDAQ and the Russell 2000 have not yet broken their June lows.
 
I am more inclined to believe today’s trading was a test of the previous lows rather than a break that will lead the market significantly lower. But I am not going to test that hypothesis with my money or my clients’ money.
 
My recommendation remains the same. Stay on the sidelines until we witness a clear bounce from the June lows. Be patient. It is better to miss a bit of the turn higher rather than find that you jumped back in too soon.

 

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The FOMC announcement this week overwhelmed all other news for traders. And the market did not like the message they inferred from the rate hike. The Standard and Poors 500 index (SPX) closed today at 3693, down 65 points or -1.7%. SPX opened the week at 3850, so today’s close represented a decline of 4.1% for the week. This month is setting up to be one of the weaker Septembers in market history. Trading volume was modestly higher than the 50-day moving average (dma) all week, but we did not witness a significant spike in volume as we did last Friday.

VIX, the volatility index for the S&P 500 options, opened the week at 27.7% and spiked to 32.3% today before settling into the close at 29.9%. VIX has been steadily rising since early September, probably in anticipation of the FOMC announcement.

I track the Russell 2000 index with the IWM ETF. IWM traded lower over the last three days, closing today at 167.31, down 4.08 or -2.4%. IWM opened the week at 177.01 for a weekly decline of 5.5%. IWM’s June low was 163 and today’s low was 165 before it recovered into the close.

The NASDAQ Composite index matched the S&P 500’s decline today, closing at 10,868 , down 199 points or 1.8% on the day and down 4.2% for the week. NASDAQ’s trading volume was below the 50 dma all week. NASDAQ took the largest declines into the June low but did not stand out this week. Perhaps the selling pressure for the formerly hot NASDAQ stocks has slowed.

The market moving event this week was the FOMC meeting with the discount rate increasing 75 basis points to result in a range of 3.00% to 3.25%. The consensus expectation of market analysts was for a 75 basis point rate hike. That appeared to be priced into the market’s prices and the market actually rose for a few minutes after the announcment. Then it settled modestly lower into the close Wednesday as Powell’s remarks at the press conference appeared rather hawkish.
 
As market analysts reviewed the members’ dot map of rate predictions, the overnight mood shifted significantly with gap openings lower yesterday and again today. FOMC members are projecting a discount rate of 4.4% by year end, peaking at 4.6% in 2023 and declining somewhat in 2024. The market interpreted this as the beginning of the “hard landing” scenario where higher interest rates push the economy into a serious recession.
 
I was considering taking this opportunity to sell far OTM SPX put spreads for my Flying With The Condor™ trading service. But the market continued to sink until a slight recovery about an hour before the close. Today’s market did appear to bounce off the June lows, and that was  very positive. I decided that staying in cash and watching the market open on Monday would be much more prudent.
 
My advice is to stay on the sidelines until we witness a clear bounce from the June lows. Don’t jump too soon; markets often test previous lows at least once before beginning a recovery.

 

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The Standard and Poors 500 index (SPX) finally found support and began to trade higher this week, closing Friday at 4,067, up 61 points or 1.5% on the day, and up 3.5% for the shortened holiday week. Trading volume continues to run along the 50-day moving average (dma) and closed below average on Friday.
 
VIX, the volatility index for the S&P 500 options, declined 11% this week, opening the week at 25.5% and closing Friday at 22.8%. In spite of this week’s decline in volatility based on three positive trading sessions, we will have to continue this bullish run much farther before returning to the 19% volatility levels of mid-August before this latest decline began.

I track the Russell 2000 index with the IWM ETF. As one might expect, IWM outpaced the blue chips this week. IWM closed Friday at 187.40, up 2% on the day and up 3.7% for the week.

The NASDAQ Composite index fell between the S&P 500 stocks and the Russell 2000 stocks this week, closing Friday at 12,112, up 250 points or 2.1% on the day and also up 4.0% for the week. However, NASDAQ’s trading volume remained below the 50 dma all week.

Powell’s comments at Jackson Hole on 8/26 started the decline that finally found support this week. However, three data points do not make a trend. Remain cautious.
 
The S&P 500, NASDAQ, and the Russell 2000 all posted very similar chart patterns this week, trading down after the holiday weekend, but then consistently higher each of the remaining three days of the week. Now the market waits for the next FOMC meeting on September 20-21. The consensus appears to be settling at a third 75 basis point rate hike and the market appears comfortable with that prospect. Personally, I don’t understand the apparent change in perception for a lower probability of a “hard landing” for the economy. The seemingly unending debt spiral of our government will have unpleasant consequences and both political parties are on board this train. Remember Greece? We are currently at those levels of debt to GDP.
 
I continue to think it wise to limit your exposure to this market until after the September FOMC meeting. I have had success with short term earnings trades on GME and DOCU and opened the AAPL iron condor for newsletter subscribers. I also opened an OTM Jan 2023 call butterfly on LNG to play the increasing price of natural gas. However, I remain largely in cash.

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This was a seriously negative week for the markets. The Standard and Poors 500 index (SPX) closed at 3873, down 28 points or -0.7%. SPX opened the week at 4084, so this close represented a decline of 5.2% for the week. Trading volume spiked higher Friday to 4.4 billion shares, double the 50-day moving average (dma) at 2.2 billion shares. The last time trading volume spiked this high was during the lows in mid-June. Is that level around 3640 the next stop?

VIX, the volatility index for the S&P 500 options, opened the week at 23.6% and closed yesterday at 26.3%. Given Friday’s market decline, I am a bit surprised VIX has not moved higher. Perhaps the large institutional players are already hedged.

The NASDAQ Composite index posted the largest decline of all of the major stock market indices this week, closing Friday at 11,448 , down 104 points or 0.9% on the day and down 6.0% for the week. NASDAQ’s trading volume also spiked Friday, hitting 7.5 billion shares as compared to the 50 dma at 4.7 billion shares.

The decline started by Powell’s Jackson Hole speech on 8/26 continued this week. The S&P 500 broke support at 3925; the next weak support level is at the May low of 3812. Then we are looking at another weak support level at 3727 before we test the June lows around 3640.
 
The next FOMC meeting is scheduled for next week with the rate announcement on 9/21. The consensus expectation of market analysts is for a third 75 basis point rate hike. How will the market respond? Is the expected rate hike priced into the current market prices or will the market continue to track downward toward the June lows?
 
Friday’s market decline of the order of five to six percent was accompanied by a trading volume spike. All of the price volatility up and down over the past couple of months occurred at average or below average trading volume. I doubt that Friday was the classic capitulation volume surge marking a market low, simply because the major market event everyone is talking about remains three days in the future.
 
My counsel is unchanged from last week. Stay on the sidelines until after the September FOMC announcement. Even then, don’t jump too soon; allow the market to digest the news. We could break that June low…

 

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The Standard and Poors 500 index (SPX) put in a tough week, declining 2.8% with a close today at 3924, down 42 points on the day or almost three percent. Trading volume spiked up above the 50 day moving average (dma) midweek but declined back below average today. This bearish pullback for August was almost entirely carried at below average trading volume. This suggests that the large institutional players are not convinced that it is time for wholesale closing of large portions of their holdings.

VIX, the volatility index for the S&P 500 options, moved over a wide range today, opening this morning at 25.6%, declining to 23.2% as the market traded higher this morning, and then closing at 25.5% after this afternoon’s selloff.

I track the Russell 2000 index with the IWM ETF. This was a rough week for IWM dropping nearly four percent on the week. IWM closed today at 180.09, down 0.8%. IWM found support yesterday and again today at 178.50, the lows of 
mid-July.

The NASDAQ Composite index was no exception to the selling pressure this week, closing 154 points to 11,631. Today’s close ended the week down 3.2%. NASDAQ’s trading volume remained below the 50 dma all week and declined even a bit further during today’s sell off.

The markets ended their recovery on August 17th and tried to recover a few days later, but Powell’s comments at Jackson Hole last Friday started a new downward trend, down over 8% through today’s close. The S&P 500, NASDAQ and the Russell 2000 all posted very similar chart patterns this week, with their intraday lows on Thursday and Friday finding support at nearly the same prices. That observation, together with lower trading volume may signal a slowing of this recent trend lower. Perhaps we will trade roughly sideways until the Fed meeting.
 
Consensus on the street was looking for the Fed to slow or even end its rate hikes for 2022, but Powell’s comments have shifted that consensus to an expectation of another 75 basis point move at their next meeting on September 20-21. Market participants are worrying about a “hard landing” for the economy, and by extension, much lower stock prices.
 
I think it wise to limit your exposure to this market until at least after the September FOMC meeting. A few exceptions may be found in the oil and gas sector, e.g., CVX and LNG. Watch your trades closely, if you trade at all.