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That sounds like a limbo contest but I’m serious. The Standard and Poors 500 index (SPX) gapped open even further than yesterday’s huge gap opening to drop another 322 points, closing at 5,074, down six percent. That puts the correction at -17.5% since the high on 2/19. SPX opened the week at 5528, resulting a loss of 8.2% for the week. Trading volume spiked up over six billion shares today, almost twice the 50-day moving average (dma) at 3.4 billion shares. To put that volume in perspective, today’s trading volume almost reached the level set two weeks ago for quadruple witching.
VIX, the volatility index for the S&P 500 options, spiked even higher today, closing at 45.3%, up 15 points or 51%. VIX opened the week at 24% but spiked higher yesterday and spiked even further today.
I track the Russell 2000 index with the IWM ETF, which closed today at 181, down 8.5 points or -4.5%. IWM opened the week at 197, chalking up a loss of 8.1% for the week. IWM’s trading volume spiked up to 93 million shares, dwarfing both the 50 dma at 30 million shares and quadruple witching on 3/21 at 39 million shares.
The NASDAQ Composite index closed today at 15,588, down 963 points or
-5.8%. NASDAQ opened the week at 17,045, setting a weekly loss of 8.5%. NASDAQ’s trading volume spiked to eleven billion shares today, well in excess of the 50 dma at 7.8 billion shares. Today’s trading volume even beat the record 8.8 billion shares set on quadruple witching Friday, March 21.
Two weeks ago, we were talking about the ten percent correction in the market, but we didn’t have a clue of how bad it could become. At this point, I am not only shocked at the magnitude of this market sell off, but worse, I don’t have a clue where this decline will finally end.
Traditionally, technical analysts look for a spike in trading volume as the market nears its ultimate low. This known as capitulation and tends to take place near the end of a market cycle when investors effectively throw in the towel and exit the market at a loss. The large declines yesterday and today on consecutively larger trading volume may be the signs of capitulation. The hope is that this signals that the bottom is near.
I use the Follow Through Day methodology developed by Investors Business Daily to determine when it is safe to begin to re-enter the market after a correction. The first thing we are watching for is a strong bullish day on a broad market index like SPX or NASDAQ. That day would be the Day One of the Follow Through Day methodology. The bullish day of 3/31 appeared to fit the criteria of Day One. The day count then continues as long as the intraday low of day one isn’t broken. That low of 3/31 at 5489 was broken yesterday, so the search for Day One continues. The purpose of this follow through day methodology is to prevent our jumping back into the market just in time for the next leg of the downtrend.
Being largely in cash and waiting to reenter the market can be difficult. Be patient.
It isn’t for everyone, but I have found that trading the zero dte options of the S&P 500 index works quite well on these otherwise dismal market days. It requires quick entry and exit, taking your profits and then being stress-free with 100% cash overnight.
I booked a 33% gain today. If you are interested in following my zero dte trading, take a look.
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The Standard and Poors 500 index (SPX) closed today at 5668, nearly unchanged, up five points or 0.08%. SPX opened the week at 5636, up 0.6% for the week. Trading volume spiked to 6.9 billion shares on quadruple witching today, over twice the 50 day moving average (dma) at 3.2 billion shares.
VIX, the volatility index for the S&P 500 options, opened the week at 22.9% and declined steadily this week, closing at 20.5% today.
I track the Russell 2000 index with the IWM ETF, which closed today at 203.8, up 1.3 points or 0.6%. IWM opened the week at 202.3, up 0.7% for the week. IWM’s trading volume ran at or below average most of the week, but with a spike higher today due to quadruple witching.
The NASDAQ Composite index closed today at 17,784, up 92 points or
0.5%. NASDAQ opened the week at 17,723, for a weekly gain of 0.3%. NASDAQ’s trading volume ran below the 50 dma most of this week and spiked higher today on quadruple witching.
The market checked all the boxes for a correction last week. Now the concern is whether the market may be pausing for another leg lower.
Trading volume has not given us a clue thus far. Traditionally, we look for what is known as capitulation, a bounce higher on strong trading volume. Today's volume was due to quadruple witching with the expiration of stock options, index futures, and index futures options contracts. That isn’t the volume spike we are watching for.
Trading in the broad market indices appears to have been establishing support over the past two weeks. However, that support could just be a short pause before the next leg lower in this correction. Trying to call the low is a dangerous game.
I use the Follow Through Day methodology developed by Investors Business Daily to determine when it is safe to begin to re-enter the market after a correction. The first thing we are watching for is a strong bullish day on above average trading volume on a broad market index like SPX or NASDAQ. Today’s bullish day on SPX and NASDAQ wasn’t much stronger than other bullish days for the past several trading sessions. We can safely ignore today’s quadruple witching volume spike for the purposes of determining Day One in the Follow Through Day methodology.
It can be tempting to jump back into the market. Be patient.
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The Standard and Poors 500 index (SPX) closed today at 5770, up 32 points or 0.6%. SPX opened the week at 5968, down 3.3% for the week. SPX appeared to find support at the 200-day moving average (dma) on Thursday and bounced higher on Friday. Trading volume ran above the 50 dma all week.
VIX, the volatility index for the S&P 500 options, opened the week at 19.8%, spiked up over 26% on Friday, but closed at 23.4%, down 1.5 points or -6.0%.
I track the Russell 2000 index with the IWM ETF, which closed today at 206, up 0.7 points or 0.3%. IWM opened the week at 215 for a weekly loss of 4.2%. IWM trading volume been running above the 50 dma for the last seven trading sessions. One has to go back to August and September of 2024 to find similar lows for IWM.
The NASDAQ Composite index closed today at 18,196, up 127 points or
0.7%. NASDAQ opened the week at 18,923, setting up a weekly loss of 3.8%. NASDAQ’s trading volume ran at or below the 50 dma this week. NASDAQ broke its 200 dma on Monday and continued to decline until today.
The overall markets hit recent highs on 2/19 and continued to decline this week. The S&P 500 has now declined 6.1%; NASDAQ Composite is down 9.5% and the Russell 2000, as measured by IWM, is now down 9.3%. Although technical analysts have traditionally viewed corrections as declines equal to or greater than 10%, I think it is fair to say the overall market is in correction with both the NASDAQ and the Russell 2000 down approximately ten percent.
Trading volume is another parameter to watch as we assess the markets. SPX’s volume ran above the 50 dma all week. The trading volume of the Russell 2000 has exceeded its 50 dma for the last seven trading sessions. Only the trading volume of the NASDAQ Composite has tracked along or even slightly below the 50 dma.
Investors Business Daily downgraded their recommended stock market exposure from 20-40% to 0-20% on Monday, consistent with a correction assessment.
Be cautious. There is nothing wrong with holding cash.
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The Standard and Poors 500 index (SPX) closed today at 5639, up 117 points or 2.1%. SPX opened the week at 5705, down 1.2% for the week. SPX finally bounced higher today, but trading volume was below the 50 dma.
VIX, the volatility index for the S&P 500 options, opened the week at 24.7%, spiked up to 29.6%, but declined the rest of the week, closing at 21.8%, down 2.8 points on Friday.
I track the Russell 2000 index with the IWM ETF, which closed today at 203, up 4.8 points or 2.4%. IWM opened the week at 203, unchanged for the week. IWM’s trading volume was above average all week.
The NASDAQ Composite index closed today at 17,754, up 451 points or
2.6%. NASDAQ opened the week at 17,840, setting up a weekly loss of 0.5%. NASDAQ’s trading volume was running below the 50 dma this week.
The conventional wisdom of the technical analysts has traditionally viewed corrections as declines equal to or greater than 10%. The NASDAQ and the Russell 2000 hit correction territory last week, and the S&P 500 joined them this week, although it did recover somewhat on Friday.
Trading volume is another parameter to watch as we assess the markets. SPX’s volume ran above its 50 dma most of the week but dropped below the 50 dma on Friday. The trading volume of the Russell 2000 continues to exceed its 50 dma. The trading volume of the NASDAQ Composite dropped below its 50 dma on Friday.
I use the Follow Through Day methodology developed by Investors Business Daily as an indicator of when it is time to begin to re-enter the market after a correction. The first thing we are watching for is a strong bullish day on above average trading volume on a broad market index like SPX or NASDAQ. Today’s bullish day on SPX and NASDAQ was on weak volume – so keep your powder dry.
Jumping back in the market early can be dangerous.
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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.
