After trading sideways for over a month, the Standard and Poors index (SPX) dramatically fell out of bed this week, closing at a low on Wednesday of 4063, down 2.7%. The market recovered somewhat on Thursday and then gapped open and traded higher Friday. However, even Friday’s strong move higher of 1.5% was not enough to result in a positive week for the S&P 500, down 1.3% for the week. Wednesday’s low almost reached the 50-day moving average (dma). Trading volume reached the 50 dma early in the week but declined Thursday and Friday.

VIX, the volatility index for the S&P 500 options took a wild ride this week, opening Monday at 17%, spiking to 28% on Wednesday and closing today just under 19%. VIX appears to suggest the market’s temper tantrum is over…

The Russell 2000 index, as measured by the IWM ETF, opened the week at 225.03 and hit a low on Wednesday of 211.85. IWM gapped open this morning and closed at 221.02, up 2.4% on the day, but down 1.9% for the week. IWM remains below its 50 dma at 222.98.

The NASDAQ Composite index closed at 13430, up 305 points or 2.3%, but the index remains down 1.9% for the week. The damage to this index has been significant, losing 8.3% since April 29th. Today’s close leaves NASDAQ well below its 50 dma at 13540. NASDAQ’s trading volume remained below the 50 dma all week and declined even farther today.

This week’s report of the consumer and producer price indices resulted in talk of runaway inflation and spooked the market. The reaction in the markets this week may have been excessive, but the potential of excessive inflation is real. The government has been printing money throughout this pandemic and talk of additional spending in the form of minimum wage increases and infrastructure spending are on the front page. Just as the pandemic stimulus bills contained little to support those actually hurt by the pandemic, I fear the same for an infrastructure bill.

The rotation out of high tech into classic industrial stocks is evident as we compare the S&P 500 with the NASDAQ Composite. But we cannot ignore the high-tech stocks that make up the NASDAQ. They now make up a large portion of our economy. NASDAQ has corrected by 8% and that will have ripple effects in the economy. In summary, there are many negative factors that cannot be ignored. On the positive side, it is remarkable that we have now had four pullbacks since the first of the year and each time the bulls have taken the opportunity to buy the lows. I worry about the possibility of the bulls losing heart.

This week’s market has taken its toll on my “slightly bullish perspective” on the market. I will be watching very carefully as next week unfolds.

The IBD market assessment reaffirms what we traders are feeling. That assessment moved from Confirmed Uptrend to Uptrend Under Pressure to Uptrend Resumes and then back to Uptrend Under Pressure in 7 trading sessions. We are being whipsawed in and out of this market.

The cash basis of my trading accounts moved significantly higher this week, from 47% to 75%. I didn’t open many new trades this week and was cautious when rolling out current income positions. I continue to focus on stocks whose price charts show them to be weathering these transient storms well. There is nothing wrong with cash.