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The Standard and Poor’s 500 Index (SPX) closed yesterday at 3943, up 4 points, but up 2.6% for the week. From the intraday low on March 4th, the low of this pullback, SPX has increased 5.9%. Trading volume on the S&P 500 has been declining throughout this recovery, dipping below the 50 day moving average (50 dma) on Friday.

VIX, the volatility index for the S&P 500 options, closed Friday at 21%. The spike intraday to 32% on March 4th represented the high for this pullback. VIX has been running at a baseline in the low twenties since the March 2020 correction.

IWM, the ETF based on the Russell 2000 group of companies, closed at 233.59 Friday. IWM bounced back 12.7% from the intraday low of this pull back on March 5th.  IWM set new all-time highs on Thursday and Friday. The small to mid-cap companies of the Russell 2000 are high beta stocks that tend to lead markets higher in the “risk on” phase and lead markets lower in the “risk off” phase.

The NASDAQ Composite index closed Friday at 13,320, up 79 points on the day and up 3.2% for the week. NASDAQ is the weakest of the broad market indices and remains below its 50 dma. The previous all-time high for NASDAQ was set at 14,152 on 2/16 and the index remains nearly 6% below that high. NASDAQ led the previous bull markets but is lagging behind on this cycle. NASDAQ’s trading volume steadily declined all week and remains well below the 50 dma.

Technical analysts use a standard terminology of a market correction being called whenever the market drops by more than 10% and lesser declines are just termed pull backs. By that standard, the S&P 500 index pulled back by 4% before recovering, and the Russell 2000 index pulled back by 7%, but the NASDAQ Composite corrected by 11%. In similar fashion, SPX and IWM reclaimed their all-time highs set in February while NASDAQ remains 6% below its all-time high of 2/16.

Most market analysts are seeing the stimulus bill as the key to this latest recovery. Other analysts are encouraged by progress with the vaccine and several states beginning to reopen. The market appears to be pricing in a strong economic recovery. That analysis may be too optimistic. A large number of small businesses won’t be reopening as the states reopen.

I am not fully invested at this point. However, I am trading cautiously. Keep your stops close.