The Standard and Poors 500 index (SPX) spiked higher today and closed up 87 points at 3753, up 2.4% on the day and up 3.1% for the week. Trading volume spiked to three billion shares today, well above the 50-day moving average (dma) at 2.4 billion shares.

VIX, the volatility index for the S&P 500 options, closed down today at 29.7% after opening the week at 32.3%. Even though the market was up dramatically today, volatility did not decline as much as I would have expected. Obviously, traders remain a bit on edge.

I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied up almost four points to close at 172.70, up 2.2% today and up 1.5% for the week. Watching the small cap stocks lead the market higher is encouraging. The question is whether it will hold next week.

The NASDAQ Composite index set a new low for the year last week, down 36%. But today’s strong reversal changed that tune, closing up 2.3% at 10,860, and up 2.7% for the week. However, NASDAQ’s trading volume barely reached the 50 dma today, so I have to wonder if this really is the beginning of a new trend higher.

The market set its new low for the year last Thursday and tried to recover through this past Tuesday, but then gave back much of those interim gains. Today’s market spike returned us to the highs set on Tuesday. The gain on the S&P 500 was accomplished with a strong spike in volume and that convinced the analysts at IBD to move their market assessment from Market In Correction to Confirmed Uptrend.
 
This year’s trading in the markets may have jaded me, but I am sure I have seen this show before. I jumped in with both feet a couple of times earlier this year and then had my head handed to me. The fact that VIX remains essentially at 30% today, even in the face of a strong day of trading, is a warning sign.
 
Today’s market surge in the S&P 500 was joined by NASDAQ and the Russell 2000 and that is certainly a good sign. But I remain cautious. My scars are fresh.
 
My recommendation from last week was to stay on the sidelines until we witness a clear bounce from the June lows. This week’s trading action wasn’t convincing. I respectfully disagree with IBD. Record rates of inflation and a Fed determined to continue raising the discount rate have not disappeared. Last week’s recommendation to stay on the sidelines remains good advice.