The Standard and Poors 500 index (SPX) closed today at 4840, up 59 points or 1.2%. SPX opened this holiday shortened week at 4772, setting up a weekly gain of 1.4%, with most of that gain coming today. Trading volume ran at or slightly above the 50-day moving average (dma) this week. Today’s trading volume seems somewhat weak for a gap opening higher this morning and such a strong gain.

VIX, the volatility index for the S&P 500 options, opened the week at 14.1%, 
rose on Wednesday’s decline, but then dropped yesterday and today to close 
at 13.3%.

I track the Russell 2000 index with the IWM ETF, which closed today at 192, unchanged for the week. This is a much weaker chart than SPX or NASDAQ. IWM hit its December high at 205 on 12/27 but remains over six percent below that high. These are the high beta stocks that should be leading a true “risk on” bullish run.

The NASDAQ Composite index closed today at 15,311, up 255 points or 1.7%. Surprisingly, this remains well below NASDAQ’s all-time high at 16,212, set on 11/22/2021. NASDAQ opened the week at 14,564, setting up a strong weekly gain of 2.7%. Nasdaq gapped open higher the last two mornings, but the trading volume remained rather low, similar to the S&P 500.

The market continues to view any and all positive economic data as supporting the Fed decreasing the discount rate. That makes me very wary of the trading action after the FOMC announcement on 1/31 because I don't see that happening. The Fed has been very clear about reaching two percent inflation rates before lowering the discount rate.

The S&P 500 set a new all-time high today, but NASDAQ remains about six percent below its all-time high. And the Russell 2000, as measured by IWM, remains over six percent below its high from December. 

The Russell 2000 normally leads strong bull markets; these are the high beta, “risk on” stocks the large funds play when they see the opportunity to “pile on”. The relatively weak trading volume on both the S&P 500 and the NASDAQ Composite should caution us to not get too carried away with bullish euphoria. Given the extreme debt levels and current political dysfunction in our country, there is a non-zero probability of a significant market correction in our future.

Pick your winners carefully. Remain cautious.