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The Standard and Poor’s 500 Index (SPX) turned south late this week, causing many analysts to begin speculating on an imminent correction. SPX closed the week at 3768, down 27 points on Friday. However, it is significant that SPX traded as low as 3750 before bouncing to recover some of the losses. It is much more of a concern when the market closes lower and then also closes at the low for the day. That usually is an ominous sign for the next trading session. But that didn’t happen yesterday. Take a look back at the price chart in late February and early March to see the number of closes at the lows of the day. That’s scary.

Trading volume on the S&P 500 increased and moved above the 50 day-moving-average (dma) Thursday and Friday as the index declined, adding some concern about those declines.

VIX, the volatility index for the S&P 500 options, closed last week at 21.5%, but opened this week higher and peaked intraday Friday at 25.8%, before closing at 24.3%. The decline in volatility Friday afternoon reflected the bounce from SPX’s intraday low on Friday.

IWM, the ETF based on the Russell 2000 group of companies, hit an all-time high on Thursday at 213.94 and closed Friday at 210.75. Friday’s candlestick was a classic doji with the opening and closing prices almost at the same point after trading quite a bit higher and lower during the trading session. Doji candlesticks signal market indecision. This suggests the market could go either way next week.

The NASDAQ Composite index closed Friday at 12,999, down 114 for the day, and down 0.4% for the week. NASDAQ’s trading volume has remained far above the 50 dma over the past two weeks.

I have been surprised by the strength of the post-correction 2020 market. The increases did not seem supported by the historic levels of unemployment and closing of so many small businesses. 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 and the new congress is talking about adding two trillion dollars to the debt. We now join the ranks of countries like Greece whose debt exceeded their GDP before they went to the EU looking for help. Who will bail out the U.S.?

Predictions of of a market correction are becoming commonplace. To my mind, a market pullback to some degree is inevitable. The question is the timing and the extent of the decline.

Market implied volatility, as measured by VIX, has been running above 20% since February 21st of last year. I suspect this run of higher volatility sets a new record. Of course, the underlying economic, political and health concerns that drive this volatility continue to be exacerbated. It is easy to become accustomed to these levels of volatility, but don’t forget that this level of volatility is warning us of the risk inherent in this market.

Be cautious out there.