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The Standard and Poors index (SPX) finally took a breather this week, closing today at 4682, up 33 points or 0.7%. SPX opened Monday at 4701 so the index was virtually unchanged for the week (down only 19 points). Trading volume has been lackluster this week, running at or slightly below the 50-day moving average (dma) all week. This level of trading volume is actually encouraging, since a spike higher on Tuesday and Wednesday as the market declined would have been much more bearish.

VIX, the volatility index for the S&P 500 options, closed today’s trading at 16.4%, virtually unchanged from last Friday’s close. VIX opened the week at 17.2% and spiked nearly to 20% on Wednesday before beginning a slow decline. The VIX divergences we observed last week did in fact predict the market’s decline this week, but fortunately it was not too severe.

The NASDAQ Composite index followed the other market indices this week, closing today at 15,861, down 0.8% for the week. NASDAQ posted a 1.0% gain in today’s trading to make up a large proportion of the week’s losses. NASDAQ’s trading volume ran above the 50 dma all week but declined to the average today.

The VIX divergences we observed last week did presage the pull back we observed this week, but it has proven minor thus far. Today’s strong market served to reassure many traders, including me. It is actually very healthy and normal for strong bull markets to take pauses or breathers as they rise. I am still left wondering about the absence of solid economic underpinnings to justify such a strong market. In spite of my doubts, my cash level decreased to 35% this week. I am doing my best to be selective in my trades but also take advantage of this bull market while I have the opportunity.