The Standard and Poors 500 index (SPX) closed today at 3862, down 57 points on the day or -1.5%. SPX opened the week at 4055 for a weekly loss of 4.8%. SPX broke down through the 50-day moving average (dma) on Thursday and broke through the 200 dma today. This is serious. Trading volume ran below the 50 dma through Wednesday, but then increased on Thursday and spiked much higher today.

VIX, the volatility index for the S&P 500 options, spiked upward today to 29% before settling down to close at 25%. VIX opened the week at 19% for a weekly increase of 32%. The market is spooked by the prospect of a large number of bank failures. But it is worth noting that VIX pulled back from that spike at 29% before the market closed. That may be evidence of traders panicking and hitting the sell button too quickly, or it could be the beginning of something much more serious.

I track the Russell 2000 index with the IWM ETF, which closed today at 176.18, down 5.2 points or 2.9% on the day and down 8% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today.

The NASDAQ Composite index closed at 11,139 today with a loss of 199 points or -1.8%, and a weekly loss of 5.1%. NASDAQ broke down through its 200 dma yesterday and broke the 50 dma today. NASDAQ’s trading volume ran along the 50 dma all week and spiked higher today.

Recall my comments from last week: “The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday; his comments could change everything.”
 
Powell’s comments did cause some market weakness, but the surprise failure of the Silicon Valley Bank spooked the markets to the core. Suddenly everyone is talking about the financial collapse of 2008. The doomsday gurus are out in force. However, I think this is a typical overreaction. There is some measure of truth in the danger of rising interest rates on holders of large quantities of low yielding treasury bonds, but I think a specialty bank like Silicon Valley Bank is much different than J.P. Morgan Chase.
 
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 (IWM) are all flashing similar danger signals. SPX is down 1.5% today and down 4.8% for the week. Similarly, NASDAQ is down 1.8% today and down 5.1% for the week. And IWM is down 2.9% today and down 8.0% for the week. All three indices have broken down through their 50 and 200 day moving averages.

The next FOMC meeting is scheduled for 3/21 and 3/22. Before the Silicon Valley Bank failure, the general consensus for that announcement was a 50-basis point increase in the federal reserve discount rate. This bank failure may give the hawks on the FOMC a pause. They don’t want to be blamed for a large-scale financial collapse in their quest to control inflation.
 
Even if I am correct about today’s move being an overreaction, I don’t see much solid economic data to cause a quick or significant bounce next week. If anything, the fear of the Fed announcement the following week will keep traders treading water.
 
Stay largely in cash. This could get rough.