The Standard and Poors 500 index (SPX) closed this holiday shortened week at 4026, down 1.1 point on the day, but up 1.8% for the week. Trading volume was typical of Thanksgiving week with many traders on holiday. The period between Thanksgiving and the end of the year is traditionally bullish and this week appears to be following that trend, but this is an unusual year for the country and the economy. Volume ran below average all week and came in at 893 million shares today, well below the 50-day moving average (dma) at 2.6 billion shares.

VIX, the volatility index for the S&P 500 options, opened the week at 24.1% and declined all week to today’s close at 20.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 185.58, up less than half a point on the day, but IWM rose 1.5% this week. IWM broke through its 200 dma on Wednesday and held that level today.

The NASDAQ Composite index was essentially unchanged today, closing at 11,226, up only 59 points or less than half a percent. NASDAQ’s trading volume ran well below the 50 dma all week and traded only 2.2 billion shares today with the 50 dma at 4.75 billion shares.

Using the S&P 500 as our proxy for the market as a whole, the bullish rally that began on November 10th was stopped by the bears last week, but the support level at 3900 held (that support level was the high of the October rally that was stopped on November 1st).
 
Traditionally, the period from Thanksgiving into the first of the year has usually been bullish and small caps have outperformed the blue chips. So, this may be a reasonably bullish period for the market, even though we are far from being able to say the bear market has been broken.
 
To put things in perspective, The S&P 500 opened the year at 4797, declined and then rallied back to 4632 on March 29th. The latest rally took SPX to 4305 on August 16th. Today’s close is 16% below the high at the beginning of the year. Even if this bullish period culminates in the classic Santa Claus rally at the end of the year, we aren’t out of the woods yet. My caution will continue until we reclaim that SPX high of 2022.
 
However, I am trying pick off some low hanging fruit from now until the end of the year. But my finger is on the button for the escape hatch. I remain largely in cash, trading small, and taking profits whenever I can.