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The Standard and Poors index (SPX) incurred eight mini-corrections earlier this year with each one displaying a similar pattern: trading down over 3 to 4 trading sessions and then sharply turning higher and recovering the previous high in only 3 to 4 trading sessions. Last week we saw the ninth mini-correction but the pattern changed this time. In all of the previous pull backs, the market bounced back in short order. The “buy the dip” strategy had a near perfect track record. I expect some traders were testing the water last week as they saw SPX appearing to find support at the 50 day moving average (dma). SPX gave us a wicked surprise on Monday, gapping open downward about thirty points and then losing nearly one hundred points before recovering about half of that loss by the market’s close.

SPX began to strengthen Wednesday and closed today at 4455, up 7 points or +0.2%. Today’s close recorded a gain of 1.2% for the week and left the index about 91 points below the previous high. Trading volume spiked higher on Friday and Monday but settled down at or below the 50 dma for the balance of the week.

VIX, the volatility index for the S&P 500 options, spiked on Monday’s severe decline to almost 29% before pulling back a bit. VIX closed at 17.8% today and that remains a rather high level of volatility. Monday’s severe drop acquired the institutional traders’ attention.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months but followed the broad market higher this week, and closed today at 223.05, essentially unchanged from today’s open. But IWM posted a 2.9% gain for the week, the best of the broad market indices. IWM also managed to recover both its 50 and 200 day-moving-averages this week.

The NASDAQ Composite index closed today at 15048, down 5 points, but managed a nice gain of 2% for the week. NASDAQ’s trading volume was above average on Monday but dropped back under the 50 dma for the rest of the week.

I have been wondering when the buy the dip strategy might not work, and that has proven to be true thus far. But the market has been posting some nice gains over the past three trading sessions, so it may just take longer for the recovery this time.

The market remains wary of a possible inflationary spike, but Powell continues his attempts to calm the markets and write off the current price increases as an artifact of the disrupted supply chain. The market was reassured this week that the Fed doesn’t foresee a need to increase the federal discount rate until late in 2022. That appeared to be the principal factor behind the bullish trading for the past three days.

My conclusions for this week are very similar to my mindset at the end of last week. The whipsawing of the markets over the last nine months is wearing me down. Much of the basic economic data are headed in the right direction, but inflation fears overwhelm everything. The strong gains of the Russell 2000 index this week were good news. But I remain very cautious.