The Standard and Poors 500 index (SPX) closed today at 4891, almost unchanged with a decrease of three points or -0.07%. SPX opened the week at 4853, setting up a weekly gain of 0.8%. Trading volume ran at or slightly above the 50-day moving average (dma) this week. Today’s trading volume came in below the 50 day moving average (dma). The S&P 500 index appears to be slowing a bit after strong gains over the past two weeks.
VIX, the volatility index for the S&P 500 options, closed today at 13.3%. VIX opened the week at 13.8%, declined to a low on Wednesday of 12.4% and rose over the last three trading sessions. The slight rise over the last few days probably reflects some concern that this bullish run is slowing.
I track the Russell 2000 index with the IWM ETF, which closed today at 196, unchanged for the day and up less than one percent for the week. This is a much weaker chart than SPX or NASDAQ. IWM remains four percent below its December high at 205. These are the high beta stocks that should be leading a true “risk on” bullish run.
The NASDAQ Composite index closed today at 15,455, down 55 points or -0.4%. NASDAQ opened the week at 15,393, setting up a slight weekly gain of 0.4%. NASDAQ’s trading volume was slightly above the 50 dma on Monday and ran below that average the rest of the week. NASDAQ remains well below its all-time high of 16,121.
Traders appear to have finally accepted that the Fed will not be reducing interest rates at this coming meeting January 30-31. The trading action after the FOMC announcement on 1/31 may be volatile.
The S&P 500 continues to set new all-time highs, but NASDAQ remains about four percent below its all-time high. And the Russell 2000, as measured by IWM, remains over four percent below its high from December.
The relative weakness of the Russell 2000 index is a significant cautionary signal; these are the high beta stocks that tend to lead strong bull markets.
The weak trading volume on both the S&P 500 and the NASDAQ Composite is another cautionary signal.
A less quantitative concern is the frequency of significant market corrections in the markets after an extremely strong run higher. In fact, that is why we use the term, correction. The idea is that the market went too high, too quickly. It is helpful to remind ourselves that the S&P 500 has not only set a new all-time high; this index has also risen 19% in only three months.
Don’t misunderstand. I am not sitting on the sidelines touting the coming crash. I am playing this market, but I am cautious and very particular in evaluating the opportunities.
