The Standard and Poors 500 index (SPX) closed today at 5955, down 93 points or 1.6%. SPX opened the week at 6027, down 1.2% for the week. The recovery on Friday helped that number. At Thursday’s close SPX was down 2.7% for the week. Trading volume ran along the 50-day moving average (dma) most of the week, but spiked higher on Friday’s recovery.

VIX, the volatility index for the S&P 500 options, opened the week at 18.1% and spiked up to 22% on Friday, but closed the day at 19.6%.

I track the Russell 2000 index with the IWM ETF, which closed today at 214.7, up 2.3 points or 1.1%. IWM opened the week at 218.8 for a weekly loss of 1.9%. IWM trading volume ran moderately above the 50 dma most of the week.

The NASDAQ Composite index closed today at 18,847, up 303 points or 
1.6%. NASDAQ opened the week at 19,590, setting up a weekly loss of 3.8%. NASDAQ’s trading volume ran at or below the 50 dma this week. Most traders have been complaining about the choppiness of the markets this year, but that tune changed this week. Now the central questions are 1) Is this the beginning of a correction?, and 2) How low can it go?


 
The overall markets hit recent highs on 2/19 and hit a low yesterday (2/27). The S&P 500 had declined 4.6% by Thursday but recovered to a loss of 3.1% on Friday. The NASDAQ Composite posted worse declines of 7.7% through Thursday and 6.2% through Friday. The Russell 2000, as measured by IWM, posted declines of 6.5% and 5.5%, respectively.

Technical analysts have traditionally viewed corrections as a decline equal to or greater than 10%. Lesser declines are usually referred to as either pullbacks or pauses. By those guidelines, we aren’t in a correction yet, but these declines aren’t minor either.

Trading volume is another parameter to watch as we assess the markets. SPX’s volume spiked higher on Friday as the market recovered. That was a good sign, but trading volume on both NASDAQ and IWM ran long the 50 dma. However, some volume gains could be the result of funds rebalancing at month end.

Investors Business Daily downgraded their recommended stock market exposure on Thursday from 40-60% to 20-40%. At these levels, IBD recommends moving largely to cash in preparation for a possible correction. Be cautious. There is nothing wrong with holding moderately large amounts of cash.