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The Standard and Poor’s 500 Index (SPX) gapped open Friday morning and continued to trade higher through the day, closing at 3194. The S&P 500 index is now only 6% below the pre-correction high. That doesn’t seem possible, but it is what it is. The 200-day moving average (dma) is now far behind us. It appears as though the pre-correction high at 3386 is now the next resistance level. Trading volume for the S&P 500 companies popped higher late this week, and spiked up to 4.7 billion shares today, well above the 50 dma at 3.3 billion shares.

VIX, the volatility index for the S&P 500 options, closed Friday at 24.5%. Although the VIX has steadily declined from the peak of the correction, the current level of volatility remains historically high. Traders should keep this volatility level in mind as we watch the markets just continue higher.

IWM, the ETF based on the Russell 2000 group of companies, gapped open higher Friday morning and closed at 150.20. IWM broke out well above its 200 dma at 146.57. IWM appears to be accelerating in its run higher, but remains 11% below its pre-correction high at 168.16.

The NASDAQ Composite index steadily traded higher this week and closed Friday at 9814. NASDAQ has now recovered its pre-correction high (to be precise, today’s close was 0.03% below the previous high). This should be good news, but it worries me.

Market analysts are trying to determine where the markets should be priced in light of the economic damage created by the overreaction to the coronavirus. The markets corrected between 32% and 43%. As of today’s close, the NASDAQ Composite has now recovered all of its correction losses. The S&P 500 companies are only off 6% from the pre-correction highs. How is this possible? Have we become too optimistic about this recovery? The strength of today’s market blew my mind. All three of the indices above gapped open strongly and never looked back.

What do we know about the economic damage?  I have seen estimates ranging from thirty to forty million Americans unemployed. The numbers being bandied about for small businesses that will never reopen are frightening. Even the current huge unemployment estimates may be low. How can the current market levels make economic sense? Many analysts were saying the market was overbought before this correction. Now what do they think?

However, one of the most fundamental of trading rules is to trade what you see and not what “you think should be happening”. I am continuing to make good money in this market. But don’t forget the market summary above. If market analysts start to reassess their estimates of the economic damage, this market could take a tumble. Remain vigilant. Be prepared to go to cash quickly if necessary. Stay calm and remain disciplined.