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This was a seriously negative week for the markets. The Standard and Poors 500 index (SPX) closed at 3873, down 28 points or -0.7%. SPX opened the week at 4084, so this close represented a decline of 5.2% for the week. Trading volume spiked higher Friday to 4.4 billion shares, double the 50-day moving average (dma) at 2.2 billion shares. The last time trading volume spiked this high was during the lows in mid-June. Is that level around 3640 the next stop?

VIX, the volatility index for the S&P 500 options, opened the week at 23.6% and closed yesterday at 26.3%. Given Friday’s market decline, I am a bit surprised VIX has not moved higher. Perhaps the large institutional players are already hedged.

The NASDAQ Composite index posted the largest decline of all of the major stock market indices this week, closing Friday at 11,448 , down 104 points or 0.9% on the day and down 6.0% for the week. NASDAQ’s trading volume also spiked Friday, hitting 7.5 billion shares as compared to the 50 dma at 4.7 billion shares.

The decline started by Powell’s Jackson Hole speech on 8/26 continued this week. The S&P 500 broke support at 3925; the next weak support level is at the May low of 3812. Then we are looking at another weak support level at 3727 before we test the June lows around 3640.
The next FOMC meeting is scheduled for next week with the rate announcement on 9/21. The consensus expectation of market analysts is for a third 75 basis point rate hike. How will the market respond? Is the expected rate hike priced into the current market prices or will the market continue to track downward toward the June lows?
Friday’s market decline of the order of five to six percent was accompanied by a trading volume spike. All of the price volatility up and down over the past couple of months occurred at average or below average trading volume. I doubt that Friday was the classic capitulation volume surge marking a market low, simply because the major market event everyone is talking about remains three days in the future.
My counsel is unchanged from last week. Stay on the sidelines until after the September FOMC announcement. Even then, don’t jump too soon; allow the market to digest the news. We could break that June low…