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The Standard and Poors 500 index (SPX) posted a classic doji candlestick on Friday with a close at 3695, up 0.5% on the day and down 0.3% for the week. Doji candlesticks are signals of indecision as the bulls push the market higher, only to have bears pull it back lower, and the market closes very close to where it opened. The bulls and bears are at a standoff. SPX essentially traded sideways this week with a high of 4029 and a low of 3907. Trading volume ran below the 50-day moving average (dma) all week with a minor exception on Tuesday.
VIX, the volatility index for the S&P 500 options, closed down yesterday at 23% after opening the week at 24%. Volatility effectively tracked sideways for the week with a high at 26% and a low at 23%, consistent with market trading action.
The NASDAQ Composite index closed Friday at 11,146, essentially flat with a rise of only one point, but down 0.8% for the week. NASDAQ’s trading volume spiked higher on Tuesday’s strong bullish run but declined the balance of the week.
The market continues to focus on record rates of inflation and fear that the Fed will raise interest rates too aggressively to curtail inflation. Last week’s CPI report provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%. That prompted the bulls to push the market higher, reasoning that the Fed would relax their pace of rate hikes and the economy would begin to fire on all cylinders.
A couple of hawkish comments from FOMC members threw cold water on those expectations for the Fed slowing their rate hikes and the market stalled. The good news is that a new bearish downtrend didn’t occur. Thus far, the market is churning sideways on declining trading volume. My assessment is that the large majority of institutional traders are essentially sitting on the sidelines, waiting for a clear signal one way or the other.
Market analysts expect corporate earnings to take a hit as companies are unable to pass through the price increases they are incurring. Earnings growth for the third quarter of 2022 grew 2.2%, the lowest rate of growth since Q3 2020. Analysts expect stock prices to decline further to compensate for the decline in earnings.
Whether we like it or not, the economy is in recession. We clearly have a large number of able bodied Americans who are choosing not to work. Today, I saw a sign at Walgreens offering a starting bonus of $1,250 for a pharmacy technician.
I remain largely in cash, trading small, and taking profits whenever I can.
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The Standard and Poors 500 index (SPX) gapped open higher on Thursday recovering the losses on Wednesday. SPX closed today at 3993, up 37 points or +0.9% on the day and up 5.6% for the week. Trading volume ran below the
50-day moving average (dma) early in the week and spiked higher on Thursday’s strong run higher.
VIX, the volatility index for the S&P 500 options, closed down today at 22.5% after opening the week at 25.7%. The largest decline in the week was on Thursday as the market spiked higher.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips all week, down on Wednesday and then spiking higher on Thursday. IWM closed today at 186.90, up 1.52 points or 0.8%, but up a full four percent on the week.
The NASDAQ Composite index closed today at 11,323, up 209 points or 1.9%, and up 7.7% on the week. NASDAQ’s trading volume spiked higher on Thursday’s strong bullish run but fell below the 50 dma today.
The market has been focused on two issues: record rates of inflation and the fear that the Fed would raise interest rates too aggressively to curtail inflation. Last week’s FOMC announcement pushed more analysts into the hard landing camp and the market responded negatively. The election results appeared to initially disappoint traders with a weak day on Wednesday. But the other core issue worrying the market has been the record rates of inflation and the CPI report this week provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%.
I believe the decline in the CPI numbers encouraged traders that the Fed may be more inclined to moderate their rate hikes. However, all it will take is some hawkish comments from a Fed member to scare the market. I expect the extreme price volatility we have seen all year may continue.
The markets traded to a high on September 12th before entering this latest decline. At today’s close, SPX is 3.2% below those highs, NASDAQ is 8.4% below and IWM is only 1.1% below. The most bullish point here is how close the small to mid-cap stocks of the Russell 2000 (IWM) are to the earlier highs in September. IWM actually pulled back from that resistance level today. Those most recent highs are the next significant hurdle for the bulls.
This economy is far from healthy and one good CPI report doesn’t provide much confidence. I am testing the waters with a couple of bullish trades, but I remain cautious.
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The Standard and Poors 500 index (SPX) spiked higher today and closed up 87 points at 3753, up 2.4% on the day and up 3.1% for the week. Trading volume spiked to three billion shares today, well above the 50-day moving average (dma) at 2.4 billion shares.
VIX, the volatility index for the S&P 500 options, closed down today at 29.7% after opening the week at 32.3%. Even though the market was up dramatically today, volatility did not decline as much as I would have expected. Obviously, traders remain a bit on edge.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied up almost four points to close at 172.70, up 2.2% today and up 1.5% for the week. Watching the small cap stocks lead the market higher is encouraging. The question is whether it will hold next week.
The NASDAQ Composite index set a new low for the year last week, down 36%. But today’s strong reversal changed that tune, closing up 2.3% at 10,860, and up 2.7% for the week. However, NASDAQ’s trading volume barely reached the 50 dma today, so I have to wonder if this really is the beginning of a new trend higher.
The market set its new low for the year last Thursday and tried to recover through this past Tuesday, but then gave back much of those interim gains. Today’s market spike returned us to the highs set on Tuesday. The gain on the S&P 500 was accomplished with a strong spike in volume and that convinced the analysts at IBD to move their market assessment from Market In Correction to Confirmed Uptrend.
This year’s trading in the markets may have jaded me, but I am sure I have seen this show before. I jumped in with both feet a couple of times earlier this year and then had my head handed to me. The fact that VIX remains essentially at 30% today, even in the face of a strong day of trading, is a warning sign.
Today’s market surge in the S&P 500 was joined by NASDAQ and the Russell 2000 and that is certainly a good sign. But I remain cautious. My scars are fresh.
My recommendation from last week was to stay on the sidelines until we witness a clear bounce from the June lows. This week’s trading action wasn’t convincing. I respectfully disagree with IBD. Record rates of inflation and a Fed determined to continue raising the discount rate have not disappeared. Last week’s recommendation to stay on the sidelines remains good advice.
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The Standard and Poors 500 index (SPX) recovered earlier losses in the week and closed up 51 points at 3882, up 1.4% on the day and up 2.9% for the week. Trading volume ran at or above the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed down today at 24.6% after opening the week at 26.9%. Even though the market declined significantly after the FOMC announcement, VIX steadily declined all week. This divergence was an early signal that the decline earlier in the week wasn’t likely to continue today.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied 1.4% to close at 178.68. But IWM remains down nearly two percent for the week. IWM’s rise yesterday was another signal that the decline earlier in the week wasn’t likely to continue.
The NASDAQ Composite index closed up 1.3% at 10,475 but remained down five percent for the week. NASDAQ’s trading volume fell below the 50 dma today.
The market has been focused on two issues: record rates of inflation and the concern that the Fed would raise interest rates significantly to curtail inflation. Market analysts have been debating whether the Fed policies will result in a so-called soft or hard landing for the economy. This week’s announcement has pushed more analysts into the hard landing camp.
The key question now is the degree to which earnings will be decreased by the record rates of inflation. The most fundamental analysis of a stock price is to view it as the price of the time adjusted cash flow for the stock’s business. Hence, if earnings are declining, the stock price must decline. Higher interest rates exacerbate this decline.
This week’s announcement of another 75 basis point increase in the federal discount rate was priced into the markets – no surprise there. However, Powell’s comments during the press conference spiked worries that more rate hikes are coming. Markets rose initially but then plummeted. Yet the VIX declined. This VIX divergence was a signal that the market consensus has not panicked.
I am not in the camp of the “sky is falling” bears, expecting a severe market crash, but I can’t be bullish in the middle of a recession. My recommendation remains to stay on the sidelines.
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The Standard and Poors 500 index (SPX) set a new low for 2022 yesterday at 3492, down 27% on the year. SPX opened higher this morning at 3690, but could not hold the gains, closing down 87 points at 3583, down 2.4% on the day and down 1.8% for the week. Trading volume spiked to 3.2 billion shares yesterday and remained above the 50-day moving average (dma) today with 2.6 billion shares.
VIX, the volatility index for the S&P 500 options, closed down today at 32% after spiking as high as 35% earlier this week. This level of volatility remains a concern. It seems like we have been saying this all year, but this is a nervous market.
I track the Russell 2000 index with the IWM ETF. IWM did not set a new low for the year on Thursday, which I regard as bullish since the small cap stocks usually lead markets lower in bear markets. IWM closed today at 166.81, down 4.6 points or -2.7% on the day and down 1.5% for the week.
The NASDAQ Composite index set a new low for the year on Thursday at 10,089, down 36%. NASDAQ closed today at 10,321, down 328 points or 3.1% on the day and down 3.2% for the week. NASDAQ’s trading volume spiked above the 50 dma on Thursday but remained below average the rest of the week.
On Monday, October 3rd, it appeared that the market had found support at the June lows. SPX gapped open the next day and set up a series of sideways trading days. Then SPX gapped downward last Friday and proceeded to break the June lows. The market opened much lower this past Thursday but immediately started a strong run higher, led by the financial stocks.
Thursday was a strong day for the markets, but Thursday’s opening set a new market low for 2022. The S&P 500 index touched down at -27%, and NASDAQ recorded a low of -36%. The Russell 2000 index, measured via IWM, did not quite reach its June low at -28%. Normally, the high beta stocks of the Russell 2000 would be leading the race to the bottom, but not this time. That is the only positive sign I can find in this market.
The only new trades I entered this week for the trading group were earnings plays on WBA (+16%), JPM (+17%), and UNH (+28%). Overnight earnings trades incur more risk, but they don’t require the trader to have a conviction for overall market direction. That market assessment has proven difficult to impossible this year.
I closed the October SPX iron condor for the Flying With The Condor™ subscribers for a gain of 23%. That service is up 27% for 2022, compared to the S&P 500 at -23%. This has been an excellent year for non-directional trading. These positions are far enough out of the money to withstand the price volatility typical of this year’s market.
My recommendation is to stay in cash until we witness a clear bounce from the June lows with follow through.
