Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

The Standard and Poors 500 index (SPX) closed today at 4136, down 43 points on the day or -1.0%. SPX opened the week at 4049, thus closing with a 2.1% gain for the week. SPX had a strong resistance level defined by the failed recoveries in December around 4100 and SPX solidly broke through that resistance on Wednesday after the FOMC announcement. SPX added to those highs on Thursday with a strong gap opening and a run up to 4180. Trading volume ran at or above the 50 dma all week, a dramatic shift from the low trading volume levels since the December holidays.

VIX, the volatility index for the S&P 500 options, closed today at 18.3% after opening the week at 19.8%. A rare VIX divergence occurred yesterday with VIX rising, in contrast to the strong gap opening and run higher on SPX. That was a prediction of today’s decline on the S&P 500 index.
I track the Russell 2000 index with the IWM ETF, which closed today at 196.99, down 1.3 points on the day or -0.7%. IWM hit resistance at 190 both yesterday and today. This is the high from mid-August. By contrast, SPX remains 4% below its corresponding August high. IWM is strongly leading SPX, a very bullish sign.

The NASDAQ Composite index closed at 12,007 today with a loss of 194 points or -1.6%. NASDAQ traded strongly higher this week with a growth of 4.3%. NASDAQ and the Russell 2000 are leading this bullish run. NASDAQ’s trading volume has posted above the 50 dma all of this year with only three exceptions, one of which was today.

With the close of SPX on Tuesday, the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac, posted a positive number for 2023. Since 1950, a positive result for the January Trifecta was followed by positive annual gains on the S&P 500 with only three exceptions. The average annual gain was 17.5% for those years. But we have another interesting statistic. We have seen 13 positive January Trifectas following a midterm bear market since 1950. All 13 posted positive annual gains with an average gain of 22% on the S&P 500 and 32% on NASDAQ.
The FOMC announcement on Wednesday, followed by Powell’s press conference, set this bull market running. Powell threaded the needle rather well, assuring the markets that the previous rate hikes are beginning to have positive effects in pulling in the rate of inflation, but he also gently pointed out that this week’s quarter point raise would probably not be the last increase this year. The market was extremely volatile immediately after the announcement but settled into a positive trend during the press conference, although SPX gave back some of those gains as it pulled back into the close. All bets were off on Thursday as the market gapped open higher and solidly broke out above resistance. The bulls were solidly in charge. But VIX moved higher, signaling a shift in market sentiment. The market was much more cautious today, although it retained most of the week’s gains and held above the 4100 support level from August. 

I am starting to enter some bullish trades. But my finger is on the exit button.