The Standard and Poors 500 index (SPX) gapped open higher this morning and took off to close at 4450 for the day, up 54 points or 1.2%. SPX opened the week at 4345, setting up a weekly gain of 2.4%. Today’s close technically broke the resistance level set by the high on 6/16, but we will have to wait until after the holiday next week to confirm that break-out. Trading volume ran below the 50-day moving average (dma) all week and barely touched the 50 dma today.

VIX, the volatility index for the S&P 500 options, closed today at 13.6%, down from 14.4% on Monday. This week’s volatility trend was almost identical to last week, starting at 14.4% on Monday and closing the week at 13.4%.

I track the Russell 2000 index with the IWM ETF, and IWM had a spectacular week, closing at 187.3, up 0.9 points or 0.5% today, but up nearly 4% for the week. IWM gapped open higher at the opening of trading three times this week. But that’s where the good news ends. IWM remains below its high from mid-June and almost 6% below its high from early February. We expect the small cap stocks of the Russell 2000 to lead both bull and bear markets, but it is running significantly behind in this latest rally in SPX and NASDAQ.

The NASDAQ Composite index closed at 13,788 today, up 197 points or +1.5% on the day and up 2.4% for the week. But NASDAQ couldn’t break its high from 6/16. NASDAQ’s trading volume ran below average all week with the single exception of Tuesday.
 
After last week’s dismal performance, it was surprising to see this week’s market essentially regain all that was lost last week. The reasoning seems a bit obscure to me. Powell spoke to Congress this week and he made it clear that the Fed isn’t through raising the discount rate. It almost seems like the market has its rose-colored glasses on and believe all is well.

Today’s big rally was set off by this morning's favorable PCE report which suggested that the inflationary forces are weakening – maybe. But notice today’s trading volume; it was very weak. That could be due to the beginning of a long weekend for many traders on Wall Street. It could also show a lack of conviction in this bullish rally.

I opened several trades on Thursday and that was rewarded today. But I remain nervous. I sound like a broken record but be cautious. Keep a cash cushion on the sideline.