The Standard and Poor’s 500 Index (SPX) closed Friday at 2541, and for a welcome change of pace, SPX was actually up almost 11% for the week. Trading volume for the S&P 500 companies fell off this week as the market started to recover but remained above the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened the week at 74% and closed the week at 66%, exactly where VIX closed last week. Tuesday posted a huge intraday low of 36%, but that couldn’t hold. The markets may be calming somewhat, but we are far from normal.
IWM, the ETF based on the Russell 2000 group of small to mid-cap stocks, closed Friday at 112.56 for a weekly gain of 10.9%. All of the broad market indices paused on Friday after a week of positive daily moves higher, but IWM didn’t give back much of the week’s gains. The relative strength of the Russell 200 stocks is encouraging.
The NASDAQ Composite index closed Friday at 7502 for a weekly gain of 9.6%. NASDAQ’s low on Wednesday set this index’s correction at 32%. Like the other broad market indices, NASDAQ posted gains all week but gave a little back on Friday. Trading volume declined slowly over the week but remained above the 50 dma all week.
The source of this severe market correction is not the usual economic cycle downturn or the crashing of a housing or dot com bubble. This correction is the result of the coronavirus pandemic. The latest CDC update of March 29th reports a total of 122,653 coronavirus infections and 2,112 deaths in the U.S. CDC changed its reporting for the current flu season this week and changed all results to ranges based on the uncertainty of their data gathering procedures. Current CDC estimates are 38 to 54 million flu infections and 24 to 62 thousand resulting deaths.
The media continue to handle this pandemic irresponsibly. Just listen to the press questions at any of the coronavirus press conferences. The press have an agenda and it isn’t connected to the well-being of the public. They are promoting panic. Even when CDC officials say it is safe to return to work, people will be too scared to leave their houses. Then the headlines will turn to the economic depression that the media created for their own purposes.
I described IBD’s (Investor’s Business Daily’s) Follow Through Day methodology in the March 13th newsletter. The day count of that methodology begins with a strong bullish day on above average trading volume. That day count began with the strong bullish day on the S&P chart this past Tuesday. The count continues as long as Tuesday’s low of 2344 isn’t broken. Friday makes Day Four. Now we watch for a strong bullish day on above average trading volume. That will be the Follow Through Day and gives us a higher probability of reentering the market successfully after the correction. If SPX breaks 2344, we restart the process.
In the meantime, be extremely picky with your trades. AMZN, WMT and DPZ are benefiting from this economic lock down and may be good choices for sticking your toes back in the water. Be cautious about entering any new positions. When you do decide to pull the trigger, trade small.
Stay calm and remain disciplined.