Dr. Duke's Blog
Do you know any trading coaches who publish the results of their trades daily? Dr. Duke posts the trading track records of his Flying With The Condor™, Conservative Income, Dr. Duke's Trading Group, and The No Hype Zone Newsletter services in the free downloads section of this web site. If you have questions about any of the trades, Ask Dr. Duke.
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) closed Friday at 2972, virtually unchanged from Monday’s opening at 2974. Friday’s price action was interesting, to say the least. SPX opened at 2954 and plunged to a low of 2902 in the first few minutes – that was scary. But the index slowly recovered and then largely chopped sideways through the balance of trading until 3:09 pm ET. At that point, SPX had touched the earlier intraday low, and in the remaining 51 minutes of trading, the index gained 69 points or 2.4%. That bullish spurt late Friday afternoon was very encouraging. First of all, the intraday low of 2856 from February 28th was tested but not reached. Secondly, a day of trading that began as a rout, ended very strongly. This was an excellent sign for next week’s market. Was this the capitulation we were waiting for?
SPX trading volume remained above the 50-day moving average (dma) all week and spiked upward on Friday, booking 3.9 billion shares, the largest trading volume for the week.
VIX, the volatility index for the S&P 500 options hit an intraday high of 49.5% on February 28th, as we set the low (so far) for this correction. VIX spiked up to 54.4% this past Friday during that initial plunge in the morning, but then settled down to 41.9% by the close of trading. Was that the high point for volatility in this correction?
IWM, the ETF based on the Russell 2000 group of companies, closed Friday at 144.40, less than a point above the intraday low of 143.91 on February 28th. Friday’s intraday low hit 16.5%, overturning the previous correction low of 15%. Similar to SPX, IWM recovered much of its early losses Friday, but it wasn’t as strong of a recovery signal as we saw with SPX.
The NASDAQ Composite index closed Friday at 8576. Intraday trading broke the 200 dma at 8417, but NASDAQ quickly recovered into the close. Trading volume was above average all week and spiked upward in the recovery Friday.
As you know, I have been skeptical of the hype surrounding the possibility of a coronavirus pandemic. Late this week, I began to see calmer voices bravely entering the discussion. I say bravely because each common sense reminder is met with hostile resistance. This incident is further evidence of the deterioration of the American people’s strength since the “Greatest Generation” that endured World War II. According to the CDC, 18,000 people have died during this flu season and this year is tracking to be much less lethal than last year’s flu season, which claimed 80,000 lives. Did you miss that headline? 80,000 deaths. About half that number die each year on our highways. I am confident that coronavirus deaths in the U.S. will be less than half of this season’s flu victims.
I am more and more convinced that the fear of a coronavirus epidemic has been greatly overblown. We will see the run on toilet paper, drinking water and hand sanitizer decline over the next few weeks. If that were the end of the story, it would be simply an illustration of the tendency of our media to generate dramatic headlines, create hysteria and get everyone tuned in for the next breathless news update. Unfortunately, that isn’t the end of the story.
This irresponsible scare mongering has resulted in tangible economic consequences. A friend of mine works for a multimedia marketing company, and he tells me the cancellations of March and April trade shows has pulled their revenues back to 2008 recession levels. The global supply chains are already showing signs of healing, but many of these losses cannot be recovered. It will leave a hole in our economy. There are several signs that today’s market price levels are oversold. Traders are trying to estimate the effects of this economic disruption and price equities appropriately.
As I pointed out last week, markets normally retest the correction lows at least once before recovering. Friday’s price action was in line with that pattern. But we aren’t out of the woods yet. My advice remains the same as last week: Be cautious and nibble at some favorite stocks at bargain prices, but trade small. Even if the market opens strongly and trades higher on Monday, be cautious.
- Written by Dr. Duke
I am certainly glad this week is over. The Standard and Poor’s 500 Index (SPX) closed today at 2954, down 402 points for the week, or -13%. The most amazing price action occurred in the last 6 minutes of trading this afternoon. SPX gained 43 points or 1.5% in only six minutes. I am impressed by the large price recovery on the daily price chart of 98 points, or 3.4%, from the trading session lows to the close, but half of that increase occurred in the last six minutes. I have never seen such a large price move squeezed into such a narrow slice of time. I was tempted to bet the farm on SPX calls for Monday, but I resisted the urge.
Trading volume rose every day this week and remained above the 50-day moving average (dma) all week. Trading volume spiked to 5.1 billion shares today. One must go back to Christmas Eve 2018 to get close to this level of trading volume. Even the February correction of 2018 was at lower volume.
The volatility index for the S&P 500 options, VIX, gapped open to start the week at 22%, steadily rose all week, and then spiked up to 49% intraday on Friday before closing at 40%. These levels of volatility are pretty rare. The last time we saw volatility spike this high was in the market correction of February 2018.
The NASDAQ Composite index opened lower at 8270 but traded higher all day to close at 8567. NASDAQ was the only broad market index to trade positively from the open today. From the recent high on 2/19, NASDAQ corrected 16%. The high tech favorites of the NASDAQ took this correction the hardest earlier in the week, but recovered significantly today. Apparently that optimism spread to the S&P 500 late in the trading session.
I have been skeptical of the panic over an imminent coronavirus pandemic for the past several weeks. When I looked up the number of deaths resulting from flu infections each winter, it put this news and breathless media coverage in clearer perspective. The CDC clearly has a responsibility to protect the American public. Starting a panic isn’t helpful to that end. Publicly stating that a coronavirus epidemic in the U.S. was inevitable was irresponsible.
According to the latest comprehensive Global Health Security survey, here is the United States' current preparedness rank: Overall: #1, Prevention: #1, Detection and Reporting: #1, Rapid Response: #2, Health System: #1, and Compliance with International Norms: #1. By comparison, here is how China ranks: Overall: #51, Prevention: #50, Detection and Reporting: #64, Rapid Response: #47, Health System: #30, and Compliance with International Norms: #141. It is astounding, given the lethality of this coronavirus variant, that the death toll among China's almost 1.4 billion people, most of whom are impoverished, is not already an order of magnitude higher than reported.
All current economic data are very solid. But the markets are at high levels of valuation. Perhaps that set up traders to panic and sell at the slightest scare. The S&P 500 index corrected 16% in only seven trading sessions. Today’s trading patterns and the dramatic decline in volatility are strong signals that we have either found the bottom or are at least close to the bottom of this correction. But the market won’t recover in seven sessions. The correction of February 2018 required about six months to fully recover. Normally the market retests the correction low at least once before recovering. This is a dangerous time to jump back in with both feet. I will be keeping a close eye on that 2860 level on the S&P 500 index. It will be surprising if we don’t revisit that level before the storm is over.
Be cautious and nibble at some favorite stocks at bargain prices, but trade small. Even if the market opens strongly and trades higher on Monday, be cautious.
- Written by Dr. Duke
One week ago Friday (1/31), we watched the Standard and Poor’s 500 Index (SPX) close down 58 points at 3226. As it turned out, that was the low of the recent pullbacks. SPX corrected by 3.2% and began its recovery this past Monday. SPX had fully recovered all of the previous week’s losses by the close on Wednesday at 3335. The S&P 500 index traded a bit higher on Thursday and then declined modestly on Friday to close at 3328, up 2.8% for the week. Trading volume ran above the 50-day moving average (dma) most of the week, but steadily declined and dropped below the 50 dma on Friday. Strong trading volume is a reinforcing signal for whatever market action is observed, whether higher or lower. The bulls were clearly in charge Monday through Wednesday, as the market gapped open higher each morning, and trading volume gained each day. As the market weakened on Thursday and Friday, volume declined.
We have seen pullbacks hitting temporary lows on 1/27 and 1/31, but the S&P 500 index is now back to the highs set earlier in January. If one plots a typical Bollinger band plot on SPX, we see that SPX completed the round trip from the upper edge of the Bollinger bands to the lower edge in eight trading sessions, but only required four trading sessions to return to the upper edge of the bands. This was another demonstration of the bullish support for this market.
VIX, the volatility index for the S&P 500 options, opened the week at 18.6% and closed Friday at 15.5%. Even as the market set new highs on Wednesday, VIX remained at 15.2%. I personally regard 15% as the borderline level of volatility. When market volatility hits 15%, I start to pay closer attention and be more cautious. The coronavirus scare is still on traders’ minds.
IWM, the ETF based on the Russell 2000 group of companies, traded even more strongly than SPX as the market recovered, but it also accentuated the turn in sentiment on Thursday and Friday, gapping lower at the open on Friday and closing at 164.88. However, IWM remained up 2% for the week. IWM’s weakness shows us that we are not yet out of the woods.
The NASDAQ Composite index closed Friday at 9521, up 330 points or 3.6% for the week. NASDAQ outperformed SPX once again this week, reflecting the strong performance of high-tech stocks like AAPL and AMZN. NASDAQ’s trading volume matched the pattern we saw in the S&P 500 companies, running above the 50 dma through Wednesday, but declining to complete the week at below average volume levels.
Each day brings new reports of coronavirus cases around the world. There are now twelve confirmed cases of coronavirus infections in the U.S. One encouraging statistic is that the current number of deaths in China as a percentage of the number of confirmed infections is lower than what was observed during the SARS outbreak in 2003.
The markets continue to be affected as traders fall prey to the alarmist news reports.
The driving forces behind this exceptional bull market remain valid:
• Two major trade agreements signed.
• Continuing strong economic data, including record low unemployment, and record wage growth, especially in the middle class.
• FOMC remains committed to low interest rates for the near future.
• Earnings and revenue growth in this earnings announcement cycle have been very strong.
My trading posture is unchanged. I describe it as cautiously bullish. Some stocks are holding up well while others are taking a hit. Our ADSK diagonal call spread is an excellent example. It now stands at a gain of 151%. ADSK continued to gain ground on Friday, closing at $207.
Remain disciplined and follow your stop loss prices. Don’t panic.
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) has been setting bullish records for the past several months, but SPX set records of a different type on Friday when it closed down 58 points at 3226. Given all of the doomsday hype in the news on Friday you may be surprised that the week’s loss was only 0.6%. As you may see from the chart, Friday’s intraday low hit two support levels. One was support from December 20th through January 6th, and the other is the 50-day moving average (dma) at 3211. SPX did not close at its low on Friday, a minor but positive sign for the optimists. If SPX breaks that support level next week, it could easily fall to 3175 for a 5% correction.
Trading volume has been very strong this month, and has only dipped below the 50 dma twice since January 2nd. Trading volume during Friday’s sell off was the highest of the month.
The volatility index for the S&P 500 options, VIX, opened the week at 17.4% and reached a low for the week on Thursday at 15.5%. Trading on Friday spiked VIX to an intraday high of 20%, but it pulled back a bit to close at 18.8%.
IWM, the ETF based on the Russell 2000 group of companies, has been trading lower since the open on January 17th. IWM broke support from early December around 162 on Friday and closed at 160.35, down 3.4. This represented a loss of 1.4% for the week, far more than the broad market indices for the blue chips.
The NASDAQ Composite index closed Friday at 9151, down 148 points. NASDAQ gapped open much lower on Monday, opening at 9092. This set up the surprising result that NASDAQ turned in a weekly gain of 0.6%. NASDAQ’s trading volume dropped below the 50-day moving average (dma) on Tuesday and Wednesday, but finished the week well above the 50 dma.
There are now eight confirmed cases of coronavirus infections in the U.S. The markets began to be affected this week as traders fell prey to the alarmist news reports. The normal flu season falls during the fall and winter months with peak flu infections in December through February. At this point in the 2019/2020 flu season, CDC has reported 19 million cases of flu in the U.S. with approximately 10,000 deaths. But those numbers don’t make the evening news. We normally don’t pay too much attention to family members and friends contracting the flu. But the flu can be very serious for children and older adults. News reports of a new flu virus strain with a specific name and nightmarish reports out of China captivate our attention. We forget that the sanitary conditions and level of healthcare in this country are light years beyond most of China. And few countries have anything comparable to the CDC. Take reasonable precautions and don’t panic.
The driving forces behind this strong bull market remain valid: two major trade agreements and strong economic data. Those trade agreements will add a minimum of one percent to this year’s GDP growth rate. The fact that the FOMC appears committed to low interest rates for the near future is icing on the cake. Earnings and revenue growth in this earnings announcement cycle have been very strong. Market prices are ultimately determined by the underlying economics. My trading posture is unchanged. I describe it as cautiously bullish. Some stocks are holding up well while others are taking a hit. My ADSK diagonal call spread is an excellent example. It now stands at a gain of 44%. ADSK declined Friday, but didn’t hit my stop loss price at $189.75. ADSK hit a low of $193.31, but recovered most of its losses as it closed at $196.85.
Remain disciplined and follow your stop loss prices. Don’t panic.
High Tech Takes the Lead
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) opened this first full week of the new year at 3218 and closed today at 3265, for an increase of 47 points or 1.5%. The January Barometer, was created by Yale Hirsch in 1972 and publicized in his Stock Traders Almanac, currently run by his son, Jeff Hirsch. There are two parts of the January Barometer: trading results for the S&P 500 index over the first five days of January and then for the full month of January. The first five days were narrowly positive with the new year opening at 3245 and the fifth trading day, 1/8/20, closing at 3253. So now we anticipate the close in three weeks for the full January barometer forecast for the year. Both measures have success records of over 80% in predicting the direction of the market for the coming year.
SPX trading volume remained weak, running roughly at or below the 50-day moving average (dma) all week. Trading volume fell off today almost like we were entering a three-day weekend.
The volatility index for the S&P 500 options, VIX, opened the week at 15.5%, and steadily declined to close today at 12.5%. This suggests that the mood of the large institutional traders remains largely bullish on the market.
IWM, the ETF based on the Russell 2000 group of companies, traded more bearishly than SPX, opening the week at 163.85 and closing at 164.89, up 0.6%. These are the high beta stocks that should be leading this bull market, but they aren’t. The bulls remain somewhat tentative.
The NASDAQ Composite index set the pace for the bulls this week, opening at 8944 and closing at 9179, up 2.6% for the week, eclipsing the S&P 500 by a full percentage point.
NASDAQ’s trading volume was also much more bullish, running consistently above the 50-day moving average (dma) every day this week.
This market is undeniably strong. In fact, it is so strong that it unnerves many observers, and I feel some of that sentiment as well. It is interesting that the current crop of bears can only argue that the bull market has lasted too long, but they have no argument other than the length of this bull market. The economic data are strong, and the Fed remains committed to low interest rates.
Draw trend lines from early October through today on the SPX, IWM and NASDAQ charts and I think you will see something interesting. Note that SPX and NASDAQ are trading well above their trend lines. Even the recent hiccups over the last couple of days of December and first couple of days in the new year didn’t take either index close to that trend line. But the IWM trendline is markedly different. Intraday trading on January 2nd touched the trend line but bounced higher. But the price action on January 3rd broke that trend line and IWM remains below the trend line today. I consider this a shot across the bow of the bulls’ ship. The bulls are running, but that run is largely in the high-tech favorites, the FANG stocks and others. You see that favor in the strong performance of NASDAQ versus the S&P 500. The high beta stocks, that are members of the Russell 2000 and make up the IWM ETF, are trading sideways. These are the stocks that should be leading the bulls’ charge, but they aren’t.
My posture remains unchanged. I am bullish, but I also remain cautious. This week’s market largely ignored the sword rattling in the Middle East, but this market remains nervous. The large institutional traders will act quickly to preserve their profits. They will sell first and analyze their actions later.
Take advantage of the bullish run, but stay alert. Don’t get too euphoric.
A Strong Holiday Week
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened this shortened holiday week at 3226 and closed Friday at 3240, up about 0.4% for the week. Monday, Tuesday and Friday were typical for a holiday week, with largely sideways trading. Exchanges closed early on Tuesday and were closed Wednesday. But SPX traded strongly higher as the market reopened on Thursday. Friday’s trading was subdued and trading volume was significantly below average all week.
Traders are increasingly optimistic about the passage of the Mexico/Canada trade agreement and the proposed trade agreement with China. The bulls have been released and they are going all in. Apple (AAPL) is a good example, trading up 12% just in December. Apple’s stock price has been subject to some volatility as the trade negotiations with China seemed to spurt forward, stall, and then resume.
The volatility index for the S&P 500 options, VIX, has been running around 12% for the past two weeks. VIX dropped below 12% intraday on Thursday and Friday, but could not hold those lows and closed Friday at 13.4%. The small rise on Friday betrays some residual concern on the part of large institutional traders. The prevailing concern appears to be whether the market has run too high and too quickly. Traders may be hedging portfolios.
IWM, the ETF based on the Russell 2000 group of companies, pulled back a bit on Friday, closing at 166, down 0.8 on the day. This appears to be a magnification of the broad market indices trading a little more weakly on Friday. The Russell 2000 serves as a measure of the degree of “risk on” or “risk off” for the large institutional traders.
The bulls drove the NASDAQ Composite index higher on Thursday, but surrendered about half of those gains on Friday, closing at 9007, down 16 points on the day, but up 0.6% for the week. Trading volume on NASDAQ came in below the 50 day moving average (dma) every day this week.
It would be a mistake to read too much into the market’s trends based on a week shortened by one and a half days of trading and extremely low trading volume on the days the market was open. It is probably safe to expect the bulls to continue to push higher into next week, but the big question mark will be whether the so-called Santa Claus rally ends with the year or continues into January. Historically, the first five days of trading in January provide a pretty reliable prediction for the year’s market. But the November elections may throw a wrench into the works.
I am bullish, but I also remain cautious. The trends in VIX are instructive. It is reasonably low, but not too low. The large institutional traders are watching carefully. Retail traders like us would be well advised to do the same.
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3184 and closed Friday at 3221, up 16 points on the day and 1.2% for the week. SPX gapped open higher Friday morning and held its gains through the day. Trading volume spiked higher, but this was probably due to the expiration of several index option and futures contracts, viz., this quarter’s quadruple witching.
The strength of the market this week was primarily due to increased optimism concerning our trade negotiations with China. Those reports are very preliminary with few solid details, so that remains a possible source of volatility for the markets.
VIX, the volatility index for the S&P 500 options, opened and closed the week at 12.5%. This isn’t a record low, but it does suggest that the large institutional traders are relatively calm. In the absence of any surprising news, volatility is likely to remain low this week as many traders are on holiday.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week, opening at 164 and closing up 1.2% at 166. IWM gapped open higher each morning this week. You don’t see that every day.
The bulls didn’t forget the NASDAQ Composite index this week, closing the week at 8925, up 1.5% on the week. NASDAQ displayed a strong gap opening higher Friday morning. Trading volume on NASDAQ came in above the 50 dma every day this week, and then spiked yesterday, primarily as a result of quadruple witching.
This week’s market delivered a strong performance with each of the broad market indices gaining 1.2% to 1.5%. If we take a longer term view of this year’s market, we find three major trading sessions. The first was a strong bullish market from the first of the year until early May.. Then the market traded roughly sideways through early October, and blasted higher for the balance of the year. The price action of IWM this week reinforced the overall bullish nature of this market. The high beta stocks are finally seeing some action as bullish traders begin to take on more risk. Speculation about the China trade negotiations will continue to deliver periods of price volatility. Threats from North Korea may send the markets a surprise as the new year approaches. I am bullish, but I also remain cautious. Keep a close eye on this market and keep your stops tight.
Merry Christmas and best wishes for a prosperous and happy new year.
All About China
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3142, almost exactly where last week’s trading opened, and managed to finally gain some steam on Thursday, closing Friday at 3169, up almost 1%. The bullish trading pattern was similar to recent weeks, with price volatility driven by the latest news and rumors about the progress of the China trade negotiations. Thursday’s strong run higher on increased trading volume was driven by the announcement of a phase one deal, but then Friday’s market was much more subdued as traders realized that the specific terms of the deal were a bit cloudy. Trading volume for the S&P 500 companies increased this week, strongly breaking the 50-day moving average (dma) on Thursday, but remaining only slightly above average on Friday.
VIX, the volatility index for the S&P 500 options, opened the week at 14.3% and spiked upward to close Monday at 15.9%. VIX then steadily declined the balance of the week, closing Friday at 12.6%. The large institutional traders are relatively calm.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week and I view this as a bullish sign since markets are typically led by these small to mid-cap stocks.
The NASDAQ Composite index also traded in a similar pattern to the S&P 500, closing the week at 8735, up 1% on the week.
This week’s market was much more steady than last week’s wild ride. Traders are a little cautious about going “all in” based on the vague announcements about the China trade deal. Even when the details of the phase one trade agreement are made public, the market may not trade significantly higher. Much of that positive trade agreement news may be already priced into this market. Any surprises in the trade agreement could result in a sharp pullback.
The price action of IWM this week once again matched SPX toe to toe. IWM has traded much weaker than the broad market blue chips most of this year. But that relationship has been turning positive over the past couple of weeks and that is a bullish sign.
This week was more encouraging, but I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. My best guess is that the phase one trade agreement will be somewhat disappointing when we finally see the details. The phase two agreement may be several months into next year, if not after the November elections. Therefore, we may be in for more of the price volatility we have been living with for the past three or four weeks, as rumors and speculation about the China trade negotiations hit the market. I remain cautious.
The following stocks traded strongly this week and will be on my watch list for next week: AAPL, AXP, BSX, GOOGL, BMY, MRK, and UNH.
A Wild Ride
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3144 and plunged nearly one percent to close at 3114 on Monday. But the worst was yet to come. Tuesday’s open was again nearly one percent down, but after trading as low as 3070, SPX recovered to close at 3093. Then Wednesday brought a gap opening higher and the Standard and Poors 500 Index closed today at 3146, almost a perfect round trip from Monday’s open. The bulls are in charge, but they are very nervous. Be careful you aren’t trampled in the stampedes.
Just as we have seen in recent weeks, this week’s market schizophrenia was triggered by comments about the trade negotiations with China. An off-handed comment from President Trump while he was in Europe triggered this sell off, but many times it starts with only a rumored comment from an unnamed insider. Trading volume for the S&P 500 companies continues to run below average, only breaking the 50-day moving average (dma) on Tuesday’s scary gap downward.
The volatility index for the S&P 500 options, VIX, opened the week at 12.7% and closed on Monday at 14.9%. But the severe drop on Tuesday pushed the intraday VIX to 18% before settling back and declining the rest of the week, closing today at 13.6%.
IWM, the ETF based on the Russell 2000 group of companies, has traded much more weakly than the S&P 500 companies all year. That correlation shifted this week. IWM matched SPX’s price action almost exactly, breaking support on Tuesday, but then recovering strongly to close today at 163, slightly higher than Monday’s open. This price action is bullish. Bull markets are typically led by these small to mid-cap stocks. Many analysts call these stocks the “risk off” stocks as traders swing for the fences in a strong bull market. I can’t be that bullish as long as the China trade cloud hangs over the market. But it is a bullish indicator.
The NASDAQ Composite index opened the week at 8673, and closed the week at 8657, up 86 points today – almost a round trip from Monday’s open. NASDAQ trading volume has been consistently running above the 50 dma far more often than the S&P 500 index. NASDAQ’s trading volume this week was at or above the 50 dma every day. That is probably driven by the so-called FANG stocks, FB, AMZN, NFLX and GOOGL. I would add AAPL to this list. The large high-tech stocks have been driving this bull market.
This week’s roller coaster ride was a little scary. That gap down in price on the S&P 500 Tuesday morning was alarming. But then we end the week where we started? This week’s trading is the best evidence yet of the nervous nature of this market. The large institutional traders have their fingers poised over the sell buttons (actually they have programmed their computers, but the poised finger delivers a more powerful image).
On the positive side, the price action of IWM was very bullish. IWM matched SPX toe to toe this week and even closed the week higher than it started. IWM has traded much weaker than the broad market blue chips most of this year.
I am putting more of my cash to work, but this week was unnerving. I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. But it is anyone’s guess when that might happen. Be cautious.
New All-Time Highs
- Written by Dr. Duke
I have almost become accustomed to the Standard and Poors 500 Index (SPX) setting new all-time highs every week. It seemed quite reasonable that the markets would slow a bit this week, but then the S&P 500 index gapped open higher Friday morning and set a new all-time high. Wow.
But before we run off and sell everything we own and buy stocks, it is a bit sobering to pay attention to the trading volume. Friday was the only day this week that trading volume for the S&P 500 companies reached the 50-day moving average (dma). And it just reached it; volume did not break higher. That serves to moderate my bullish enthusiasm.
VIX, the volatility index for the S&P 500 options, closed Friday at 12%. This was the lowest closing level for volatility this year. One must go back to September 21st, 2018 to find a lower close for VIX. Traders are feeling calm and bullish.
IWM consists of the Russell 200 companies, largely small to mid-cap domestic companies with higher beta values. These are the “risk on” stocks. IWM has been trapped in a sideways channel defined on the lower edge by the highs from August and September around 157.50, and on the upper edge by the intraday highs around 160 from the last two weeks. IWM closed Friday at 158.9, up 0.82. A breakout of IWM would be a strong confirmation of the bull market.
Similar to the S&P 500 companies, the NASDAQ Composite index set a new all-time high on Tuesday, but traded flat most of this week. NASDAQ gapped open Friday morning and ended the day at a new all-time high of 8541, up 62. NASDAQ trading volume was stronger than the S&P 500 companies, breaking out above the 50 dma three out of five days this week.
We continue to see consistent bullish signals over the past several weeks with new all-time highs on several of the broad market indices, Dow Jones Industrials, S&P 500, and NASDAQ. Moderately weak trading volume and IWM’s sideways trading are the principal cautionary signals.
The strong market surge on Friday came as a result of positive news on the trade negotiations with China. Be careful not to jump too soon or too strongly. We don’t have a signed trade deal as yet. The market is certain to leap higher on the news of a signed deal, but it also bears repeating that even a rumor that a deal is being delayed once again will cause a pullback in the markets.
My trading posture is bullish but I remain cautious. My stops are tighter and I don’t hesitate to close my losers. The price charts for the following stocks are impressive: AAPL, EW, GOOGL, LULU, MSFT, and PANW.