The Standard and Poors 500 index (SPX) finally found support and began to trade higher this week, closing Friday at 4,067, up 61 points or 1.5% on the day, and up 3.5% for the shortened holiday week. Trading volume continues to run along the 50-day moving average (dma) and closed below average on Friday.
VIX, the volatility index for the S&P 500 options, declined 11% this week, opening the week at 25.5% and closing Friday at 22.8%. In spite of this week’s decline in volatility based on three positive trading sessions, we will have to continue this bullish run much farther before returning to the 19% volatility levels of mid-August before this latest decline began.
I track the Russell 2000 index with the IWM ETF. As one might expect, IWM outpaced the blue chips this week. IWM closed Friday at 187.40, up 2% on the day and up 3.7% for the week.
The NASDAQ Composite index fell between the S&P 500 stocks and the Russell 2000 stocks this week, closing Friday at 12,112, up 250 points or 2.1% on the day and also up 4.0% for the week. However, NASDAQ’s trading volume remained below the 50 dma all week.
Powell’s comments at Jackson Hole on 8/26 started the decline that finally found support this week. However, three data points do not make a trend. Remain cautious.
The S&P 500, NASDAQ, and the Russell 2000 all posted very similar chart patterns this week, trading down after the holiday weekend, but then consistently higher each of the remaining three days of the week. Now the market waits for the next FOMC meeting on September 20-21. The consensus appears to be settling at a third 75 basis point rate hike and the market appears comfortable with that prospect. Personally, I don’t understand the apparent change in perception for a lower probability of a “hard landing” for the economy. The seemingly unending debt spiral of our government will have unpleasant consequences and both political parties are on board this train. Remember Greece? We are currently at those levels of debt to GDP.
I continue to think it wise to limit your exposure to this market until after the September FOMC meeting. I have had success with short term earnings trades on GME and DOCU and opened the AAPL iron condor for newsletter subscribers. I also opened an OTM Jan 2023 call butterfly on LNG to play the increasing price of natural gas. However, I remain largely in cash.