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The Standard and Poors 500 index (SPX) closed today at 4136, down 43 points on the day or -1.0%. SPX opened the week at 4049, thus closing with a 2.1% gain for the week. SPX had a strong resistance level defined by the failed recoveries in December around 4100 and SPX solidly broke through that resistance on Wednesday after the FOMC announcement. SPX added to those highs on Thursday with a strong gap opening and a run up to 4180. Trading volume ran at or above the 50 dma all week, a dramatic shift from the low trading volume levels since the December holidays.

VIX, the volatility index for the S&P 500 options, closed today at 18.3% after opening the week at 19.8%. A rare VIX divergence occurred yesterday with VIX rising, in contrast to the strong gap opening and run higher on SPX. That was a prediction of today’s decline on the S&P 500 index.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 196.99, down 1.3 points on the day or -0.7%. IWM hit resistance at 190 both yesterday and today. This is the high from mid-August. By contrast, SPX remains 4% below its corresponding August high. IWM is strongly leading SPX, a very bullish sign.

The NASDAQ Composite index closed at 12,007 today with a loss of 194 points or -1.6%. NASDAQ traded strongly higher this week with a growth of 4.3%. NASDAQ and the Russell 2000 are leading this bullish run. NASDAQ’s trading volume has posted above the 50 dma all of this year with only three exceptions, one of which was today.

With the close of SPX on Tuesday, the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac, posted a positive number for 2023. Since 1950, a positive result for the January Trifecta was followed by positive annual gains on the S&P 500 with only three exceptions. The average annual gain was 17.5% for those years. But we have another interesting statistic. We have seen 13 positive January Trifectas following a midterm bear market since 1950. All 13 posted positive annual gains with an average gain of 22% on the S&P 500 and 32% on NASDAQ.
 
The FOMC announcement on Wednesday, followed by Powell’s press conference, set this bull market running. Powell threaded the needle rather well, assuring the markets that the previous rate hikes are beginning to have positive effects in pulling in the rate of inflation, but he also gently pointed out that this week’s quarter point raise would probably not be the last increase this year. The market was extremely volatile immediately after the announcement but settled into a positive trend during the press conference, although SPX gave back some of those gains as it pulled back into the close. All bets were off on Thursday as the market gapped open higher and solidly broke out above resistance. The bulls were solidly in charge. But VIX moved higher, signaling a shift in market sentiment. The market was much more cautious today, although it retained most of the week’s gains and held above the 4100 support level from August. 



I am starting to enter some bullish trades. But my finger is on the exit button.

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The Standard and Poors 500 index (SPX) closed today at 4071, up 10 points on the day or +0.25%. Today’s modest gain was a bit misleading since the S&P 500 gained a full four percent this week. SPX broke out above the 50-day moving average (dma) last week and broke out above the 200 dma this week. We have a solid resistance level defined by the failed recoveries in December around 4100. SPX threatened those highs with an intraday high at 4094, but it then pulled back into the close. If the S&P 500 index runs out of gas next week as the FOMC meeting comes into view, we have intermediate support levels with the 50 dma, then 3900 and 3775. With few exceptions, trading volume has run below the 50 dma since November. In my opinion, that is evidence of the large institutional players cautiously waiting on the sideline. Fed watching will be the principal activity through the announcement on Wednesday.

VIX, the volatility index for the S&P 500 options, steadily declined this week, opening Monday at 20.2% and closing today at 18.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 190, up one point on the day or about one half of one percent. However, IWM posted a strong week, up 2.7% and, most significantly, breaking through 188 on Thursday and trading up to 190 today. That IWM level of 188 is equivalent to 4100 on the S&P 500. That was the resistance level set by the failed recoveries in December. IWM and NASDAQ are the only broad market indices to break out above those December highs.

The NASDAQ Composite index closed at 11,622 today with a gain of 109 points or one percent. NASDAQ broke out above its 200 dma today and also solidly broke out above the highs of the failed recoveries in December. NASDAQ’s trading volume has been running above the 50 dma for the past twelve trading sessions with only one exception. It appears the bulls are bargain hunting among the beat-up high-tech stocks of the NASDAQ.

I have previously discussed the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac. The S&P 500 would have to drop over 5% by the close of trading on Tuesday for the January Barometer, and hence, the January Trifecta, to fail. This month and consequently the year, are looking more positive, but I am still licking my wounds from last year.
 
My trading is off to an excellent start this year with the trading group up over 19% and our two open trades are both posting gains. The Flying With The Condor™ service is up eleven percent. The hobgoblin worrying me is the FOMC announcement on Wednesday. That could easily kill this bullish recovery.



Make fun of me if you wish, but I remain cautious.

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The Standard and Poors 500 index (SPX) closed today at 3999, up 16 points on the day or +0.4%. SPX broke out above the 200-day moving average (dma) today, a positive sign for the S&P 500 but it is far too soon to break out the champagne. SPX has run into strong resistance around 4100 three times since September of last year. Trading volume continues to be rather anemic, running along the 50 dma again this week.

VIX, the volatility index for the S&P 500 options, closed today at 18.4% after opening the week at 21.8%. You have to go back to January of last year to find volatilities below 18%. I am unsure this lower level of volatility actually reflects complacency on the part of the large institutional traders. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. They are waiting for a successful test of the 4100 level on SPX.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 187.05, up 1.2 on the day or +0.7%, but IWM was up 4.5% for the week, much stronger than its big cap brothers. IWM broke out above both its 50 dma and 200 dma this week. The next level of resistance for IWM is around 188, where the rallies in November and December failed. Seeing the Russell 2000 lead the large cap stocks is very encouraging.

The NASDAQ Composite index closed at 11,079 today with a gain of 78 points or 0.7% but closed the week up nearly four percent. NASDAQ broke out above its 50 dma on Wednesday and made additional progress higher for the balance of the week. NASDAQ’s trading volume broke the 50 dma four times this week, but those were modest spikes in volume. However, NASDAQ must grow 3.6% just to challenge the levels of resistance from November and December when the earlier rallies failed.

Yale Hirsch of the Stock Trader’s Almanac was the first analyst to define and publish the Santa Claus Rally. This year’s Santa Claus was weak, but positive, with an opening on 12/23 at 3815 and a close on 1/4 at 3853, or +1%. Yale also would track the first five days of January and that was also positive this year. The January Barometer, defined as the trading record for the entire month, will be the next signal. In years when the Santa Claus rally, the first five days, and the full January results are all positive, the full year has been positive 90% of the time with an average gain in the S&P 500 of 17.5%.
 
FactSet Research published a report this week on the projected earnings of the S&P 500 for the fourth quarter of 2022. They predict a decline of 3.9%. This would be the first decline since the third quarter of 2020, at -5.7%. This earnings decline sets up the next question. Has the S&P 500 index price decline of 2022 been sufficient to balance that projected earnings decline? Or do we need prices to decline further to reach reasonable P/E ratios?
 
I remain cautious. I entered a few trades this week, but I am watching them like a hawk. My condor trades are on fire in this market. I have already closed both the January and February positions, leaving us up 11% for the year. The S&P 500 is only up 3% over the same period of time. Ouch! I just threw my arm out patting myself on the back.

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The Standard and Poors 500 index (SPX) closed today at 3973, up 74 points on the day or +1.9%. Today’s impressive gain salvaged the week for the S&P 500 with a loss of 0.7%. Yesterday’s close would have left the index down 2.5% for the week. SPX broke out above the 50-day moving average (dma) today and closed just above the 200 dma. We have a new resistance level defined by Tuesday and Wednesday’s highs around 4100. Support may be found at the lower edge, 3782, of the sideways consolidation from 12/19 to 1/5. If SPX breaks down through 3782 and then 3700, we could be headed for support at the earlier low at 3497, or even break down for a new low for this bear trend. Trading volume continues to be rather anemic, running along the 50 dma again this week. This suggests that a large amount of cash remains on the sideline and also that a capitulation low has not yet been reached.

VIX, the volatility index for the S&P 500 options, closed today at 19.9% after opening the week at the same level of 19.9%, and then spiking to a high on Thursday of 21.7%. The disappointment of another failure to break out higher isn’t apparent from the VIX levels. The bulls have not yet given up hope. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. On the other hand, the bears have not really taken control of this market. Yesterday was their opportunity but they could not follow through today.

The NASDAQ Composite index closed at 11,140 today with a gain of 288 points or +2.7%. NASDAQ closed above its 50 dma today but remains well below its 200 dma at 11,567. NASDAQ’s trading volume spiked to six billion shares today, well above the 50 dma at 4.9 billion shares. NASDAQ has taken the largest hit in this bear market and traders are looking for an opportunity to get back in the high-tech stocks at attractive prices.

The most negative evidence for this market is the long string of market rallies that have failed to break resistance and then have fallen to new lows. I was able to capitalize on the brief rally this month in AAPL, BA, CAT, and WYNN, but I closed for gains at the first sign of weakness. However, one has to take account of today’s strong rally into the close. If there are any remaining bulls out there, that has to be encouraging. 



I remain cautious.

 

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The Standard and Poors 500 index (SPX) closed yesterday at 3895, up 87 points on the day or 2.3%. That close was very close to the 50-day moving average (dma) at 3904. Breaking out above the 50 dma would be a positive sign for the S&P 500 that has been trading sideways since December 19th. On the other hand, a break below 3775 and then 3700 would be a significant bearish signal. Trading volume has run along the 50 dma in this first week of January and that is a great improvement from the last two weeks.

VIX, the volatility index for the S&P 500 options, opened the year at 23% and closed yesterday at 21% with a decline of 1.3 points yesterday alone, based on the strong bullish gain on Friday.

I track the Russell 2000 index with the IWM ETF. IWM closed Friday at 177.58, up 3.90 on the day or +2.3%, but IWM was up less than one percent for the week. The next level of resistance for IWM is the 50 dma at 179, although Friday’s move was a definite departure from the sideways channel of trading since December 16th.

The NASDAQ Composite index closed at 10,569 yesterday with a gain of 264 points or 2.6% but closed the week essentially flat with a gain of less than one percent. NASDAQ’s trading volume ran consistently along the 50 dma during this first week of trading in January.

The period from Thanksgiving into the first of the year has historically been bullish and small caps have normally outperformed the blue chips over this period of time. That didn’t happen this year.
 
Yale Hirsch of the Stock Trader’s Almanac was the first analyst to define and publish the Santa Claus Rally. Hirsch’s famous saying was: If Santa Fails To Call, Bears May Come to Broad and Wall. The Santa Claus Rally is defined as the net gain or loss during the last five trading days in December together with the first two trading days in January. This year’s Santa Claus was weak, but positive, with an opening on 12/23 at 3815 and a close on 1/4 at 3853, or +1%.
 
The Stock Trader’s Almanac also tells us to watch the first five days of trading in January and the full month of January, known as the January Barometer, as additional signs of what the new year has in store. The first five days of January trading will be confirmed with the close on Monday.
 
In years when the Santa Claus rally, the first five days, and the full January results are all positive, the full year has been positive 90% of the time with an average gain in the S&P 500 of 17.5%.
 
I am not forgetting the pain of 2022 and I remain cautious. I will be entering fewer and smaller trades as I watch the market pattern develop this month.