The Standard and Poors 500 index (SPX) closed today at 4024, up 94 points or 2.4% in a single day. But SPX had declined this week by 3.7% through Thursday’s close, so even with today’s strong recovery, SPX was down 1.4% for the week. The CPI and PPI announcements this week were the principal reasons for this week’s market weakness. Today’s open on SPX gapped open much higher than Thursday’s close and today’s open was also today’s low; both are very bullish signs.

VIX, the volatility index for the S&P 500 options, opened this week at 32% and then spiked to over 35%, before declining steadily and then gapped lower today to close at 29%. But this remains a high level of volatility.

The NASDAQ Composite index closed at 11,805 today, up 434 points or 
3.8% in a single trading session. However, it couldn’t make up for the week’s earlier losses, so NASDAQ closed down one percent for the week. Trading volume ran above the 50 dma all week. Thursday’s intraday low set a 30% correction for NASDAQ since the January highs.

Last week I was complaining about how commonly the market has sold off on Fridays this year, but I thought the market was finally finding support. Well, I was dead wrong as the market took another step lower this week. The difference this week was the strong bullish recovery today on all of the broad market indices. The S&P 500, NASDAQ and the Russell 2000 indices all gapped open at this morning’s open and continued to trade higher into the close.

The inflation data earlier this week appeared to push the market to new lows, but it may be that analysts started to realize that the rate of inflation may have peaked. The Consumer Price Index peaked at a year over year increase of 8.5% last month; CPI increased 8.3% this month on a year over year basis. Similarly, on year over year basis, PPI increased 11.5% last month , but declined to 11% this month.

That is the best explanation I have for today’s strong market. But next week may bring a new reason to trade lower. I keep thinking the market has turned the corner and I dip my toe in the water. As a result, I have lost several toes. This market has humbled me and I remain largely in cash.