Category: Dr. Duke's Blog
Hits: 689
Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

The Standard and Poors 500 Index (SPX) opened the week at 3142, almost exactly where last week’s trading opened, and managed to finally gain some steam on Thursday, closing Friday at 3169, up almost 1%. The bullish trading pattern was similar to recent weeks, with price volatility driven by the latest news and rumors about the progress of the China trade negotiations. Thursday’s strong run higher on increased trading volume was driven by the announcement of a phase one deal, but then Friday’s market was much more subdued as traders realized that the specific terms of the deal were a bit cloudy. Trading volume for the S&P 500 companies increased this week, strongly breaking the 50-day moving average (dma) on Thursday, but remaining only slightly above average on Friday.

VIX, the volatility index for the S&P 500 options, opened the week at 14.3% and spiked upward to close Monday at 15.9%. VIX then steadily declined the balance of the week, closing Friday at 12.6%. The large institutional traders are relatively calm.

IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week and I view this as a bullish sign since markets are typically led by these small to mid-cap stocks.

The NASDAQ Composite index also traded in a similar pattern to the S&P 500, closing the week at 8735, up 1% on the week.

This week’s market was much more steady than last week’s wild ride. Traders are a little cautious about going “all in” based on the vague announcements about the China trade deal. Even when the details of the phase one trade agreement are made public, the market may not trade significantly higher. Much of that positive trade agreement news may be already priced into this market. Any surprises in the trade agreement could result in a sharp pullback.

The price action of IWM this week once again matched SPX toe to toe. IWM has traded much weaker than the broad market blue chips most of this year. But that relationship has been turning positive over the past couple of weeks and that is a bullish sign.

This week was more encouraging, but I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. My best guess is that the phase one trade agreement will be somewhat disappointing when we finally see the details. The phase two agreement may be several  months into next year, if not after the November elections. Therefore, we may be in for more of the price volatility we have been living with for the past three or four weeks, as rumors and speculation about the China trade negotiations hit the market. I remain cautious.

The following stocks traded strongly this week and will be on my watch list for next week: AAPL, AXP, BSX, GOOGL, BMY, MRK, and UNH.