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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.

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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.

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The Standard and Poors 500 Index (SPX) closed Friday at 3023, up 12 points. Friday’s close represented a gain for the week of 0.9%. Although it was a bullish trend for the week, it was a choppy path higher as each day brought a new report or rumor about the trade negotiations with China.

Trading volume for the S&P 500 companies only broke above the 50-day moving average (dma) on one day this week, and Friday’s trading came in significantly below average. The lower volume continues to stand as a caution flag for this market. The bulls are buying, but they are also nervous and taking profits when they are available.

VIX, the volatility index for the S&P 500 options, declined significantly Wednesday through Friday, closing the week at 12.7%. Volatility hasn’t been this low since July. The market is calming in spite of all of the China trade and impeachment talk.

The Russell 2000 Index (RUT) continued to track higher this week, closing Friday at 1559, up 1.1% on the week.

The NASDAQ Composite index broke through resistance this week and closed Friday at 8243, up 57 points, capping off a strong week’s performance of 1.3%. Watch for the next resistance level at July’s high of 8330. NASDAQ trading volume was below average all week, but managed to touch the 50 dma on Friday.

It is worth noting that both the Russell 2000 and the NASDAQ Composite outperformed the S&P 500 index this week. That is a strong bullish signal.

This week’s trading was generally bullish, but each day brought a new twist, sometimes higher and sometimes lower. The trade negotiations with China continue to hang over the market. We are fortunate the U.S. economy is strong enough to persevere through these tariffs.

I am continuing to be somewhat cautious in this market. It is certainly a bullish market, but the bulls are nervous and it doesn’t take much to cause them to hit the sell button. I am picking my stocks carefully and favoring the solid blue chips like AAPL, COST and JPM. My iron condor trades on SPX are doing very well, gaining 27% in October and 16% for the November position. Stay alert. Whenever possible, use trailing stops to protect your gains.

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The Standard and Poors 500 Index (SPX) opened the week by setting a new 
all-time high at $3032 and then added 1.2% this week to close Friday at 3067, another all-time high. The choppy trading resulting from the China trade negotiations that has characterized recent weeks was generally absent this week. The bulls are in charge. Unlike recent weeks, trading volume for the S&P 500 companies broke out above the 50-day moving average (dma) four days this week. That has not happened in a long time. Perhaps the bulls have opened up their wallets a bit.

VIX, the volatility index for the S&P 500 options, opened the week slightly above 13% and steadily declined to close the week at 12.3%. Volatility hasn’t been this low since July. The market apparently isn’t too concerned about the China trade negotiations and all of the breathless impeachment talk.

I have always used the Russell 2000 Index (RUT) to track small capitalization stocks and compare those performances to the large blue-chip stocks of the S&P 500. Unfortunately, the Russell company has raised their prices so much that my charting service, StockCharts.com, has given up carrying the Russell 2000 index. A few months ago, the software that I use to analyze and back test option trades quit offering intraday pricing for RUT options due to the rising prices for the data. I am changing over to tracking the price chart of the ETF, IWM, which is based on the Russell 2000 group of companies. IWM is roughly one tenth the price of the Russell index (similar to the relationship of SPX and SPY). IWM closed at 158.10 on Friday, and RUT closed at 1589.33. The minor differences in price are due to the stocks in the Russell 2000 index being weighted by shares outstanding whereas IWM contains shares of the Russell 2000 companies weighted by market capitalization.

IWM broke through the previous highs from September and July, and closed Friday at 158, up 3 points. IWM remains well below its all-time high of 171 in August 2018.

The NASDAQ Composite index gapped open Monday morning at 8286, and proceeded to add another 1.2% to close at 8386, up 94 points on Friday. This represents another all-time high for NASDAQ. NASDAQ trading volume hit the 50 dma on Monday and traded above the average Thursday and Friday.

This week brought us several bullish signals. First of all, we finally are beginning to see some increased trading volume. Money is coming in off the sidelines. An even more bullish signal came from IWM. The Russell 2000 companies, all domestic small cap stocks, outperformed both the S&P 500 and NASDAQ this week, up 1.3%, as compared to 1.2% for SPX and NASDAQ. SPX and NASDAQ set new all-time highs this week and the Dow is one point away from setting a new all-time high. Several of these broad market indices displayed multiple gap openings higher this week – all in all, a very bullish week.

My caution is beginning to diminish a bit and I am putting more of my cash to work. However, I won’t be strongly bullish until we settle the trade dispute with China. Some negative news on that front could hit the market at any time. On the other hand, a signed deal would spike this market higher. Stay alert. Whenever possible, use trailing stops to protect your gains.

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News and rumors continue to jerk this market around on a daily basis. The Standard and Poors 500 Index (SPX) closed Friday at 2986, down 12 points. SPX remained modestly positive for the week, up 0.7%. It was a choppy week for the markets with a new report or rumor about the trade negotiations with China driving the market almost on a daily basis. Last Friday’s evening star candlestick was not confirmed by trading this week. The bullish underlying trend remains, but each day brings a new dose of either confidence or pessimism. It is a difficult market to trade. When it moves higher, traders take profits, and then the next rumor drives it lower, and the bulls buy the lows.

Trading volume for the S&P 500 companies broke above the 50-day moving average (dma) on Friday but the first four days of the week traded at volumes well below average. The lower volume continues to stand as a caution flag for this market. The bulls are buying, but they are also taking profits.

VIX, the volatility index for the S&P 500 options, reflected the choppy market action this week, opening the week at 15.7% and then moving to a low on Thursday of 13.8%. But Friday’s market weakness took its toll, increasing volatility to 14.6%. This is a moderate level of volatility, not exactly calm, but not scary either.

The Russell 2000 Index (RUT) appears to be attempting a rebound over the past couple of weeks after a very weak September. Russell closed Friday at 1525, down five points on the day, but up 1.2% for the week.

The NASDAQ Composite index appeared to hit resistance this week at the highs set in May and September. NASDAQ closed Friday at 8090, down 67 points, but up 0.6% for the week. NASDAQ trading volume was below average all week, but managed to touch the 50 dma on Friday.

This week was a repeat of last week’s trading with wide swings one day and then a doji candlestick the next day, driven by the latest rumors and/or news on the trade negotiations with China. This remains a dangerous market. I expect the volatility will continue and I remain less than fully invested. Pick your trades carefully and stop out positions aggressively.