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The Standard and Poors 500 index (SPX) closed today at 5,344, up 25 points or 0.5%. SPX opened the week at 5,151, setting up a weekly gain of 3.7%. Trading volume spiked on Monday but then declined all week, ending the week at 2.1 billion shares, well below the 50-day moving average (dma) at 2.7 billion shares.
VIX, the volatility index for the S&P 500 options, gave us a wild ride this week, opening Monday at 23.4%, spiking to 66% and then steadily declining to today’s close at 20.4%. It certainly appears as though the market panicked on Monday and then steadily realized that nothing much had changed.
I track the Russell 2000 index with the IWM ETF, which closed today at 206, almost unchanged, down 0.4 points or -0.2%. IWM remains below its 50 dma.
The NASDAQ Composite index closed today at 16,745, up 85 points or 0.5%. NASDAQ opened the week at 15,713, setting up a strong weekly gain of 6.6%. After spiking higher on Monday, NASDAQ’s trading volume declined to the 50 dma for the rest of the week.
Many of us, including me, had not heard of the Sahm Rule before last Friday. Claudia Sahm is currently the chief economist with New Century Advisors and once held a senior position with the Federal Reserve Board. The rule attributed to her states that a recession is underway when the three-month average of the unemployment rate increases more than 0.50% in one year. On Monday, the signal triggered at 0.53% and the market panicked. The S&P 500 dropped 228 points or 4.3%.
In many ways, the market was set up for this dark prediction because most analysts were disappointed the FOMC did not reduce rates on July 31 and feared the Fed was leading us to a classic “hard landing”. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower last Friday and then repeated that performance again on Monday. The lows on Monday had the S&P 500 at -10%, NASDAQ at -16% and the Russell 2000 at -12%.
It would be premature to declare the market correction is over, but the recovery this week has been significant with the S&P 500 at +3.0%, NASDAQ at +3.4% and the Russell 2000 at +2.0%. The decline in trading volume is another positive sign.
I have found Investors Business Daily’s Follow Through Day methodology very helpful for determining when it is safe to begin reinvesting in the market after a correction. For the time being, we remain largely in cash. Corrections often retest the initial lows. It is prudent to not jump back in too quickly.
For now, I am watching for the Follow Through Day signal. Be patient.
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The Standard and Poors 500 index (SPX) closed today at 5,347, down 100 points or -1.8%. SPX opened the week at 5477, setting up a weekly loss of 2.4%. Trading volume ran above the 50-day moving average (dma) for the last four days of this week. SPX set its recent high at 5670 on 7/16 and today’s close results in a pullback of 5.7%.
VIX, the volatility index for the S&P 500 options, closed today at 23.4% with an intraday high of 29.7%. VIX opened the week at 16.6% and rose as high as 18.5% during the week but spiked up significantly today.
I track the Russell 2000 index with the IWM ETF, which closed today at 209, down 8 points or -3.5%. IWM set its most recent high at 225 on 7/16, leading to a pullback of 7.1% to date.
The NASDAQ Composite index closed today at 16,776, down 418 points or
-2.4%. NASDAQ opened the week at 17,332, setting up a weekly loss of 3.2%. From NASDAQ’s opening high on 7/11, this index has now corrected by 10%. NASDAQ’s trading volume rose above the 50 dma for the last three days of this week.
Traders were hoping for a reduction of the federal discount rate at the FOMC meeting on July 30-31. Markets traded higher after the FOMC announcement on 1/31, but the mood changed after further reflection and the markets traded off significantly over the past two days. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower today for large losses.
Trading analysts have traditionally referred to market declines as pullbacks until they reach ten percent, where the term, correction, is employed.
The S&P 500 index broke down through its 50 dma today; the NASDAQ Composite broke through its 50 dma on Wednesday of last week, and the Russell 2000 index found support at its 50 dma today.
Corrections come in different sizes. The correction of February of 2018 was 12%; December 2018 was 20% and the correction in March 2020 was 35% (all measured with the S&P 500 index). It is impossible to predict the severity of this pullback.
The only trades that remain open in my accounts are in the Conservative Income service and my long-term portfolio. Outside of those accounts, it is interesting that my only gains this week were for three earnings announcement trades in the trading group and two trades in the Zero DTE trading service. The irony is that those trades represent the riskier trades of my repertoire. What they have in common is a very short duration.
I think this is a good time to be largely in cash.
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The Standard and Poors 500 index (SPX) closed today at 5567, up 30 points or +0.5%. Today’s performance capped off a strong week at +1.8%. Trading volume ran below the 50-day moving average (dma) all week, with the exception of Monday.
VIX, the volatility index for the S&P 500 options, opened the week at 13.0% and declined the rest of the week to close today at 12.5%.
I track the Russell 2000 index with the IWM ETF, which closed today at 201, down one point or -1.5%. IWM opened the week at 204 for a weekly loss of 1.5%. IWM continues to trade a very choppy and non-directional pattern.
The NASDAQ Composite index closed today at 18,353, up 164 points
or 0.9%. NASDAQ opened the week at 17,774 for a weekly gain of 3.3%. NASDAQ set new all-time highs for each of the past three days. Trading volume ran below the 50 dma all week with the exception of Monday’s spike.
The broad market indices have traded in a sideways channel since June 12th, but that changed markedly this week with nearly a 2% gain for the S&P 500 and the NASDAQ Composite was up over 3%. But the IWM chart, representing the small cap stocks of the Russell 2000, is downright ugly, trading without any direction.
This underscores the below average trading volume of the large blue-chip stocks. To have the strong gains we saw this week post with weak trading volume suggests that the large institutional players are largely on the sidelines.
When I read the articles from the market analysts, they all seem to be waiting for signals from the FOMC about coming interest rate reductions. Weak trading volume suggests the large institutions are far from being “all in”. When we see the Russell 2000 come to life, that will be the signal that the institutional traders are beginning to load up on some risk. Until then, we will continue to see the strong price volatility we have seen in June. No one wants to lose the gains of the past few months and they are nervous that the end is coming.
Be careful out there.
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The Standard and Poors 500 index (SPX) closed today at 5505, down 40 points or 0.7%. Today’s performance capped off a weekly decline of 2.4%. Trading volume jumped above the 50-day moving average (dma) on Wednesday but then declined the rest of the week.
VIX, the volatility index for the S&P 500 options, opened today at 16.4%, spiked up to 17.2% and moved as low as 10.6% before closing at 16.5%, up almost four percent for the day. VIX opened the week at 12.8% and increased 29% this week. Traders are spooked.
I track the Russell 2000 index with the IWM ETF, which closed today at 216.8, down 1.1 points or 0.5%. IWM opened the week at 214.8 for a weekly loss of 0.9%. IWM started a very strong recovery last week that continued through Tuesday this week before succumbing to the pull back of the blue chips.
The NASDAQ Composite index closed today at 17,727, down 144 points
or 0.8%. NASDAQ opened the week at 18,486 for a weekly loss of 4.1%. NASDAQ set new all-time highs last week and touched that level on Monday but declined the rest of the week. Trading volume ran below the 50 dma all week with the exception of Monday’s spike and declined significantly today. That may be the result of the global IT outage; many brokers were out of business much of the day.
The broad market indices have traded in a largely bullish trend since early May, but this week brought a decisive change of direction, although I am unsure what triggered the shift. The Russell 2000 was the oddity over much of this period since it was clearly not participating in the rally. However, that all changed on July 11th when IWM gapped open over two percent. IWM gapped open higher over the next four trading sessions. After trying to set a new all-time high on Tuesday, it declined into the close and traded lower the rest of the week.
Russell stood out this week with a gain of 0.9%. The S&P 500 lost 2.4% while NASDAQ brought up the rear with a loss of 4.1%.
The commonly accepted standard for calling a correction is a decline greater than ten percent. Lesser declines are called pull backs. NASDAQ is the winner in the downward race with a decline of 5.1% from its most recent high. SPX has declined 2.9% and the Russell 2000 has lost 3.5%. A relatively small group of high-tech stocks has dominated the bullish run this year, and the small caps were late to the game. Perhaps it isn’t too surprising that the NASDAQ with its high-tech dominance is leading the pull back, just as it led the rise.
I think it is premature to be thinking about corrections, but this week, at a minimum, is worthy of our paying closer attention.
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The Standard and Poors 500 index (SPX) closed today at 5347, down 6 points or +0.1%. However, SPX was up nearly one percent for the week. SPX set a new all-time high on Wednesday, and the index chopped sideways the balance of the week. Trading volume declined steadily all week, remaining below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 13.1% and spiked up to 14.3% on Monday, but declined the rest of the week to close today at 12.2%. This level of volatility is moderately high for a bullish market; this market is nervous and ready to sell to preserve gains on any pretext.
I track the Russell 2000 index with the IWM ETF, which closed today at 201.2, down 2.3 points or -1.1%. IWM opened the week at 207.5 for a weekly loss of 3.0%. IWM broke down through its 50 dma today. SPX and NASDAQ are setting new market highs, but the Russell 2000 index is declining.
The NASDAQ Composite index closed today at 17,133, down 40 points or -0.2%. NASDAQ opened the week at 16,866 for a weekly gain of 1.6 percent. Trading volume ran below the 50 dma all week, similar to the S&P 500 index.
The market continues to be obsessed with real or imagined signals from Powell and the other members of the FOMC. Nearly all of the large moves in the market this year, higher or lower, have been triggered by perceptions of the Fed’s plans for interest rates. The street sees rate reductions as a return to easy money, economic expansion and a strong stock market. That promise is always appealing. The CME FedWatch now rates the probability of a rate reduction in the FOMC meeting in September at 71%. That estimate is up from 47% the previous week. That appeared to trigger Wednesday’s strong move higher. This bullish move is being led by a small number of high-tech stocks. While the S&P 500 and the NASDAQ were setting new all-time highs, the small cap stocks of the Russell 2000 index broke down through the 50 dma.
This bull market is fragile. If the large players were really confident, we would see strong buying of the high beta stocks of the Russell 2000. This market is riding on the backs of the so-called Magnificent Seven. That is probably the explanation of the below average and declining trading volume on SPX and NASDAQ.
It doesn’t make sense to sit on the sidelines but keep the fragility of this market in mind. Keep a close watch on your positions.
