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The Standard and Poors index (SPX) essentially traded sideways this week, closing Friday at 4395, down 24 points on the day and down 0.3% for the week. The trading volume of the S&P companies ran at or below the 50 day moving average (dma) all week with the exception of Friday when it came in at 2.27 billion shares with the 50 dma at 2.06 billion shares.

VIX, the volatility index for the S&P 500 options, wandered sideways with the market this week, hitting intraday lows at 17.2% and intraday highs at 20.4%, before closing Friday at 18.2%. Traders remain on guard and are buying protection.

I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM closed Friday at 221.05, down 1.47 or 0.7% on the day, but managed to close up 0.3% for the week. I don’t want to read too much into this, but it is at least worth noting that IWM booked a positive gain for the week while the S&P 500 blue chips lost 0.3%.

The NASDAQ Composite index didn’t fare as well as the S&P 500 or the Russell 2000, closing Friday at 14,673, down 106 points on the day or -0.7% and down 1.0% for the week. NASDAQ’s trading volume continued to come in below its 50 dma and decreased steadily all week.

Roughly speaking, we have endured a week of severe declines, followed by a strong recovery week and now we have just traded sideways all week. Maybe the market is trying to digest the cost data and fears of inflation. The FOMC met this week and continues to assure the market that they aren’t preparing to raise the federal discount rate and are continuing to pump money into the economy by buying bonds each week. Market gurus are split on whether inflation will be good or bad for the stock market. I think both groups are probably correct at the extremes. I still remember moving to Chicago in 1980 and trying to buy a house at 13% interest rates. That puts a damper on the market.

I watched a presentation from Merrill Lynch this week (I know, but they remain Merrill Lynch to me). An interesting tidbit: they predict corporate earnings will grow by over thirty percent during the remainder of this year. They base that prediction on a continuing recovery from the economic shutdown. If they are correct, that will definitely fuel the market’s climb higher.

I started the week 54% in cash and ended the week at 74%. This result surprised me as I computed it just now. As I analyze my cash basis, I realize I entered several new positions this week, but scaled back the size from what would be normal for me. I have also allowed several naked puts to expire worthless this week without rolling them out. I am reminded of the day traders who always go to cash at the end of each trading session to avoid overnight risk. I am wary of weekends. My rational mind sees pretty solid economic numbers but the whipsawing of this year’s market has left me a little gun shy (I don’t hunt but it is a very appropriate expression).