The Standard and Poors 500 index (SPX) closed today at 4784, essentially flat, up less than four points or 0.08%. SPX opened the week at 4704, setting up a weekly gain of 1.7%, recovering last week’s losses. Trading volume ran just below the 50-day moving average (dma) all week. This level of trading volume seems lackluster for a bullish week of recovery.

VIX, the volatility index for the S&P 500 options, opened the week at 14.0% and steadily declined all week to close at 12.7%.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 193. This is a much weaker chart than SPX or NASDAQ. IWM opened the week at 193, so while SPX and NASDAQ were recovering last week’s losses, IWM was unchanged. IWM hit its December high at 205 on 12/27 but remains 5.9% below that high. That is not a bullish sign.

The NASDAQ Composite index closed Friday at 14,973, up three points or 0.02%. NASDAQ opened the week at 14,564, setting up a strong weekly gain of 2.8%. With the exception of Monday, trading volume ran below the 50 dma all week.

Traders concluded after the December FOMC meeting that the Fed was planning to begin reducing interest rates during the first quarter. Then the CPI came out this week with an increase of the annual rate of +3.2% up to +3.4%. The initial response was a large decline on Thursday, but the market recovered intraday.

The Santa Claus rally, developed by Yale Hirsch of the The Stock Trader’s Almanac, follows the trading of the last five days in December together with the first two trading days in January. Santa Claus didn't visit Wall Street this year, declining 1.1%. The Stock Trader’s Almanac also follows the First Five Days of January and the January Barometer for the full month of January. The First Five Days indicator also failed this year with a decline of 0.4%. Now we wait on the January Barometer to give us a clue for the nature of this year's market. The strongest bullish signal occurs when all three January indicators are positive. When we see a positive gain for the entire month of January, we have an 84% track record of this preceding a bullish year.

Another Stock Trader’s Almanac measure to watch is whether the December lows are broken during the first quarter; when that happens, the probability of a bearish year increases.

The S&P 500 has now recovered all of last week’s losses and set a new high. NASDAQ has recovered much of its losses but remains below the previous highs. The Russell 2000 isn’t even close to recovering its recent losses. I am not feeling very confident that the bulls can carry this market. Be cautious.