The Standard and Poors index (SPX) fell out of bed this morning, closing the shortened trading session at 4595, down 107 points or 2.3%. This was an extreme move in at least two aspects. First of all, one doesn’t expect significant market moves during holiday weeks. Many traders are away from their desks and trading is normally more sluggish. Secondly, today’s drop handily broke support around 4647, set during the last three days of trading last week.

VIX, the volatility index for the S&P 500 options, gapped open much higher this morning, opening at 26.6% after closing Wednesday at 18.6%. VIX ran as high as 28.5% and down to 23.9%, before settling near its open at 27.4%. Those VIX divergences of the past few weeks caught up with us.

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 closed today at 223.59, down 7.99 or 3.5%. IWM has traded steadily lower since November 8th and gapped open lower this morning and broke the 200 dma before recovering to close just slightly below the 200 dma. I wondered aloud last week if IWM was the canary in the coal mine – yes, it was. I should have paid attention!

The NASDAQ Composite index gapped open lower this morning and closed the shortened trading day at 15,492, down 354 points or 2.2%.

Last week, I wrote: “A severe correction is historically very unusual for a holiday shortened week like we will have next week, but I am still cautious.” I should have been more cautious, but I believed it unlikely that we would see a severe correction in a shortened holiday week. The market has a habit of surprising our predictions based on history.

My cash level increased a bit this week, from 58% to 60%, so the damages to my portfolio were minimal. Today’s price action seemed extreme to me. The conventional wisdom blamed a new covid variant. We have known that the common flu, a coronavirus like covid 19, mutates almost continually. That is why the flu vaccines have never resulted in perfect protection. That didn’t seem to stop us from leading our normal lives. We seem to have forgotten what we learned in the past, but it is difficult to learn when you are panicked.