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The Standard and Poor’s 500 Index (SPX) opened the new year Monday morning at 3765, but then declined the rest of the day. However, the rest of the week was a different story with gains every day and gap openings higher on Thursday and Friday. SPX closed today at 3825, up 21 points. Trading volume on the S&P 500 increased this week over the previous holiday weeks but didn’t rise too much over the 50-day moving average (dma), so these index price increases are a bit tentative.

VIX, the volatility index for the S&P 500 options, spiked up intraday on Monday over 29%, but declined the rest of the week, closing today at 21.6%. This remains a relatively high level of volatility, even though we may be becoming accustomed to it. Remain vigilant.

IWM, the ETF based on the Russell 2000 group of companies, opened the week at 197.54, but gapped open higher on Wednesday and Thursday, posting new all-time highs both days. IWM weakened today to close down at 207.72. Today’s pause in IWM may be a precursor to next week’s market action in the large cap indices.

The NASDAQ Composite index opened the year at 12,959 and closed today at 13,202, a new all-time high, after strong gap openings higher on Thursday and Friday. NASDAQ’s trading volume was far above the 50 dma all week. The tech sector appears to be alive and well.

This latest bullish run began with the Covid vaccine but was given a boost this week after the election was finally settled. It still puzzles me that the market is trading so strongly. We have suffered significant economic damage, and our national debt has been pushed even farther out of line by the stimulus spending. Our debt now exceeds our annual GDP. We join the ranks of countries like Greece and it didn’t end well for them.

Perhaps the higher implied volatility is derived from those concerns. Higher volatility makes selling option premium very lucrative but don’t forget that this same volatility is warning us of the risk inherent in those expensive options.

As we begin the new year, allow me to brag about Parkwood Capital's services. The Trading Group finished 2020 with a gain of 370%. The Conservative Income service gained 26% and the Weekly Newsletter's trade recommendations gained 44%.

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