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The Standard and Poors 500 index (SPX) closed yesterday at 4134, up four points on the day or +0.1%. SPX opened the week at 4137, essentially unchanged over the week. Note the long lower shadows on the candlesticks this week. The bulls are holding the market up but are not strong enough to push it higher. Trading volume continues to run below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 17.6%, and steadily declined to yesterday’s close at 16.8%. Implied volatility is also largely unchanged for the week.
The NASDAQ Composite index closed at 12,072 yesterday, up 13 points or +0.1%. NASDAQ opened the week at 12,108, down 0.3% for the week or effectively unchanged. The long lower shadow on yesterday’s candlestick shows the support of the bulls; they are holding back the bears but aren’t able or willing to drive it higher. NASDAQ’s trading volume continues to run below the 50 dma.
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 177.6, up 0.2 points or +0.1% on the day. IWM opened the week at 177, so the Russell 2000 index is also trading sideways, in parallel with its big brothers, SPX and NASDAQ.
The fundamentals of this market remain unchanged. We continue to have high inflation, although the last CPI and PPI reports gave us some hope of moderation. On the other hand, the Fed’s pushing interest rates higher to fight inflation is stressing the banks holding large quantities of low interest treasury bonds. These forces appear to be roughly balanced at this point and I think the sideways trading in the market is evidence of that standoff. The S&P 500 index continues to trade between well-defined support around 4100 and the February highs around 4200. Traders are watching closely for signals of a breakout up through 4200 or a break down through 4100 or even 4050.
The SPX iron condors in my Flying With The Condor™ service are working very well in this market, up 35% in 2021, up 38% last year, and up 21% thus far this year. We have added a sister product, focused on smaller accounts, trading the S&P ETF, SPY. Our May and June positions stand at +18% and +12%, respectively. Contact me if you have any questions about this new service.
I remain cautious in this market. A small number of stocks are weathering the storm, but prices are very volatile. Being whipsawed in and out of positions is commonplace. Trade small and retain a large proportion of your trading capital in cash.
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The Standard and Poors 500 index (SPX) closed yesterday at 4138, down 9 points on the day or -1.3%. Support is found at 4100, the failed December rally highs, and SPX has held its ground above that support level this week. Yesterday’s candlestick pattern is the classic doji, the mark of indecision. That may signal a reversal of the most recent trend higher. Trading volume continues to lag well below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 19.4%, and steadily declined to yesterday’s close at 17.1%. This is approximately the low from early February before the decline of SPX to its March lows.
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 176.5, down 1.7 points or -0.9% on the day but IWM remained up 2% for the week. IWM remains below both its 50 dma and its 200 dma. The Russell 2000 index continues to trade weakly compared to the S&P and NASDAQ companies. That is a bearish signal for the overall market.
The NASDAQ Composite index closed at 12,123 yesterday, down 43 points or -0.4%. However, NASDAQ opened the week at 11,975, thereby holding a small gain of 1.2% for the week. NASDAQ remains well above support at 11,900, but Friday’s doji candlestick may be forewarning a reversal. NASDAQ’s trading volume continues to run significantly below average.
This week’s economic data were generally pretty flat, but the moderation of the Consumer and Producer price indices gave analysts hope that we may have seen the worst of inflation. And that, in turn, causes optimism that interest rates won’t be pushed any higher by the Fed. But those may be thinly supported hopes.
Two fundamental questions remain unanswered:
· Is the bear market of 2022 over?
· Is it safe to devote more capital to this market?
Using the S&P 500 index as our best indicator of the market at large, we are caught between well-defined support around 4100 and the February highs around 4200. If we broke out above 4200, that would be encouraging, but when we look back and realize SPX began last year around 4800, we are far from feeling confident about the resumption of a bull market trend. We have a lot of ground to make up before we are out of this hole. That answers the first question and leads to a somewhat negative answer to the second question.
I am devoting more cash to my far OTM SPX and SPY iron condors simply because those trades have been working very well in this market. But a lot of cash remains on the sideline.
I remain cautious.
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The Standard and Poors 500 index (SPX) closed yesterday at 3971, up 22 points on the day or +0.6%. However, SPX opened the week at 3917 for a weekly gain of 1.4%. SPX found support at the 200 dma on Wednesday and held above that support the balance of the week. Trading volume steadily declined this week, running slightly above and then below the 50-day moving average (dma) as the week progressed.
VIX, the volatility index for the S&P 500 options, closed yesterday at 21.7%, up 0.9 points or +4%. VIX opened the week at 27.8%, declined significantly on Monday and Tuesday, but then traded sideways the rest of the week.
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 171.8, up 1.5 points or 0.9% on the day but down 0.3% for the week. IWM is about ten points below its 200 dma and is about fifteen points below its 50 dma. This extremely weak Russell 2000 is the most negative sign of all for this market.
The NASDAQ Composite index closed at 11,824 yesterday, gaining 37 points or +0.3%. NASDAQ opened the week at 11,614 leading to a 1.8% gain for the week. NASDAQ remains well above both its 50 dma and 200 dma. NASDAQ’s trading volume opened below the 50 dma on Monday and continued to decline as the week wore on.
The big news this week centered on the FOMC meeting and its announcement on Wednesday to raise the federal discount rate by 20 basis points, resulting in a federal funds rate of 4.75% - 5.00%. In the press conference, Powell emphasized that the banking system is sound, but that inflation remains a problem and the FOMC will continue to pursue its goal of 2% annual inflation. Committee members predicted one more rate hike this year on the so-called “dot map” of economic projections.
The FOMC finds itself in a tough spot. If it truly is committed to reducing inflation to their stated goal of 2%, its primary tool is to continue to raise interest rates. However higher rates are stressing the banking system and continue to threaten a severe recession. The CPI and PPI reports last week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. But we also learned that the rising interest rates were at the heart of last week’s bank failures. The Fed is, indeed, in a tough spot.
Remember that your brokerage accounts are insured for double the amount of FDIC insurance on bank accounts. And the brokerages are just sweeping those funds in and out of money market funds – much safer than the banks.
Be careful. Stay largely in cash.
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The Standard and Poors 500 index (SPX) closed today at 4109, up 58 points on the day or +1.4%. SPX opened the week at 3983 for a weekly gain of 3.2%. SPX is up 6.6% year to date. Today’s close broke the failed December rally highs at 4100, but I would like to see that confirmed next week. I have been fooled too many times over the last 18 months. Trading volume ran below the 50-day moving average (dma) this week. That isn’t a solid endorsement of the rally.
VIX, the volatility index for the S&P 500 options, opened the week at 22.1%, and steadily declined to today’s close at 18.7%. closed today at 21.7%, up 0.9 points or +4%. Some analysts view a low level of volatility to be bearish and it is true we have recently hit levels around 18% and that was followed by another spike higher. Historically, levels around 18% are not really low.
I track the Russell 2000 index with the IWM ETF, which closed today at 178.4, up 3.2 points or 1.8% on the day and up 2.6% for the week. IWM remains below both its 200 dma and its 50 dma. The Russell 2000 index posted a strong performance this week but remains comparatively weak.
The NASDAQ Composite index closed at 12,222 today, gaining 208 points or +1.7%. NASDAQ opened the week at 11,869 leading to a 3% gain for the week. NASDAQ has now broken out above above both its 50 dma and 200 dma and is threatening its February high. On the other hand, NASDAQ’s trading volume is not very encouraging, running well below average all week.
This week’s economic data are mediocre at best, although the trends are sideways to slightly higher. A key piece of data was today’s PCE price index, up 0.3% for February, down from January’s +0.6%, but the year over year figure remains at 5.0%, down slightly from 5.3% last month. The FOMC focuses on the PCE data, so this may encourage a continuation of the discount rate hikes this year. The FOMC’s primary tool to bring down the inflation rates is to continue to raise interest rates. However, higher rates are stressing the banking system. March has turned out to be reasonably strong, but the market remains volatile and may twitch lower on any bad news.
I have been entering a small number of trades but remain cautious. I closed several trades earlier this week that would have been profitable if I had held them through today. I posed the question above: Is the Bear Market Over? I have the scars from last year and it isn’t clear to me that this market has turned higher. IBD has changed their market assessment to Confirmed Uptrend, but I will need additional confirmation before committing additional cash to this market.
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The Standard and Poors 500 index (SPX) closed today at 3917, down 44 points on the day or -1.1%. However, SPX opened the week at 3835 for a weekly gain of 2.1%. Today was the only down day all week. But the extreme price volatility leaves us feeling as though it traded down all week. Trading volume really came to life this week, running above the 50 day moving average (dma) all week, and peaking at 5.6 billion shares today, double the 50 dma at 2.6 billion shares.
VIX, the volatility index for the S&P 500 options, closed today at 25.5%, up 2.5 points or +11%. VIX opened the week at 24.1%, spiked as high as 30% on Wednesday and then dropped to a low of 23% on Thursday before running up to 25.5% today. The banking scare has created a wild ride for volatility.
I track the Russell 2000 index with the IWM ETF, which closed today at 171.23, down 4.8 points or -2.7% on the day and down 0.75% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today. IWM is well below both its 50 dma and 200 dma.
The NASDAQ Composite index closed at 11,631 today with a loss of 87 points or -0.7%. However, NASDAQ opened the week at 11,041 leading to a 4.3% gain for the week. NASDAQ managed to regain both its 50 dma and 200 dma this week. NASDAQ’s trading volume ran above average all week and spiked higher today with 7.9 billion shares as compared to the 50 dma at 5.4 billion shares.
We have experienced an interesting couple of weeks. Last Friday we read about the failure of the Silicon Valley Bank. That was a shock. No sooner had Yellen assured us all was well, then Signature Bank closed its doors and now we are hearing dire news about Republic Bank.
The CPI and PPI reports early this week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. Then we learned that the rising interest rates were at the heart of these bank failures. Of course, one has to wonder about bank management that didn’t see the writing on the wall as the Fed started this rate hike journey last year.
These events have led to speculation that the Fed meeting next week might announce a small discount rate hike or might even take a pause for a meeting or two. This administration has made some special concessions for these banks to keep their depositors whole. One has to wonder if Yellen is leaning on Powell to announce a pause in rate hikes at their meeting next week.
A small number of stocks appear to be handling this news well: AMD, AMAT, ANET and others. But this market remains extremely volatile.
Be careful. Stay largely in cash.
