The Standard and Poors 500 index (SPX) posted a classic doji candlestick on Friday with a close at 3695, up 0.5% on the day and down 0.3% for the week. Doji candlesticks are signals of indecision as the bulls push the market higher, only to have bears pull it back lower, and the market closes very close to where it opened. The bulls and bears are at a standoff. SPX essentially traded sideways this week with a high of 4029 and a low of 3907. Trading volume ran below the 50-day moving average (dma) all week with a minor exception on Tuesday.
VIX, the volatility index for the S&P 500 options, closed down yesterday at 23% after opening the week at 24%. Volatility effectively tracked sideways for the week with a high at 26% and a low at 23%, consistent with market trading action.
The NASDAQ Composite index closed Friday at 11,146, essentially flat with a rise of only one point, but down 0.8% for the week. NASDAQ’s trading volume spiked higher on Tuesday’s strong bullish run but declined the balance of the week.
The market continues to focus on record rates of inflation and fear that the Fed will raise interest rates too aggressively to curtail inflation. Last week’s CPI report provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%. That prompted the bulls to push the market higher, reasoning that the Fed would relax their pace of rate hikes and the economy would begin to fire on all cylinders.
A couple of hawkish comments from FOMC members threw cold water on those expectations for the Fed slowing their rate hikes and the market stalled. The good news is that a new bearish downtrend didn’t occur. Thus far, the market is churning sideways on declining trading volume. My assessment is that the large majority of institutional traders are essentially sitting on the sidelines, waiting for a clear signal one way or the other.
Market analysts expect corporate earnings to take a hit as companies are unable to pass through the price increases they are incurring. Earnings growth for the third quarter of 2022 grew 2.2%, the lowest rate of growth since Q3 2020. Analysts expect stock prices to decline further to compensate for the decline in earnings.
Whether we like it or not, the economy is in recession. We clearly have a large number of able bodied Americans who are choosing not to work. Today, I saw a sign at Walgreens offering a starting bonus of $1,250 for a pharmacy technician.
I remain largely in cash, trading small, and taking profits whenever I can.