SPX closed up $3 today at $1968 and RUT traded down two dollars to close at $1160. Volatility pulled back a bit with the VIX losing a half point to close at 12.1%. SPX lost almost one percent of its value this week (0.8% to be precise). The broad support range of $1950 to $1960 was reaffirmed with SPX dipping into that range three times this week. Trading volume fell off significantly today - did I miss the memo of today being a holiday? Only 1.6 billion shares of the S&P stocks traded today. Trading was down 15% on the NYSE and declined 10% on NASDAQ.

The small cap stocks fared much worse than their blue chip cousins this week, with RUT losing 3.7% of its value. The support level at $1155 held; that support level was established in mid-April when RUT bounced back upward, only to be pulled back lower in May. RUT's 50 dma is at $1150, so this is a strong support area for RUT. The NASDAQ composite fared a little better than RUT, but still worse than SPX, closing the week down 1.4%. In many ways, this week seemed to be a replay of the pullback in RUT and NASDAQ from early March until mid-May. The SPX largely traded sideways while RUT and NASDAQ took it on the chin.

This divergence between the small cap stocks and the blue chips has many analysts worried. The small caps historically lead the bull charges, but also lead the bearish corrections. When traders are very bullish, they begin to invest in higher risk stocks to make the larger gains. And when traders start to worry, they seek protection in the blue chips. The question remains: are the small cap stocks the leading indicator for a correction? I find that question sufficiently worrisome that I left my hedges in place over the weekend, in spite of a relatively quiet and flat day in the markets.

We'll see... Enjoy your weekend.