The Standard and Poors 500 index (SPX) closed yesterday at 4138, down 9 points on the day or -1.3%. Support is found at 4100, the failed December rally highs, and SPX has held its ground above that support level this week. Yesterday’s candlestick pattern is the classic doji, the mark of indecision. That may signal a reversal of the most recent trend higher. Trading volume continues to lag well below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 19.4%, and steadily declined to yesterday’s close at 17.1%. This is approximately the low from early February before the decline of SPX to its March lows.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 176.5, down 1.7 points or -0.9% on the day but IWM remained up 2% for the week. IWM remains below both its 50 dma and its 200 dma. The Russell 2000 index continues to trade weakly compared to the S&P and NASDAQ companies. That is a bearish signal for the overall market.

The NASDAQ Composite index closed at 12,123 yesterday, down 43 points or -0.4%. However, NASDAQ opened the week at 11,975, thereby holding a small gain of 1.2% for the week. NASDAQ remains well above support at 11,900, but Friday’s doji candlestick may be forewarning a reversal. NASDAQ’s trading volume continues to run significantly below average.

This week’s economic data were generally pretty flat, but the moderation of the Consumer and Producer price indices gave analysts hope that we may have seen the worst of inflation. And that, in turn, causes optimism that interest rates won’t be pushed any higher by the Fed. But those may be thinly supported hopes.

Two fundamental questions remain unanswered:

·      Is the bear market of 2022 over?
·      Is it safe to devote more capital to this market?

Using the S&P 500 index as our best indicator of the market at large, we are caught between well-defined support around 4100 and the February highs around 4200. If we broke out above 4200, that would be encouraging, but when we look back and realize SPX began last year around 4800, we are far from feeling confident about the resumption of a bull market trend. We have a lot of ground to make up before we are out of this hole. That answers the first question and leads to a somewhat negative answer to the second question.

I am devoting more cash to my far OTM SPX and SPY iron condors simply because those trades have been working very well in this market. But a lot of cash remains on the sideline.

I remain cautious.