The Standard and Poors 500 Index (SPX) closed Friday at 2732. I was glad to see the 50-day moving average (dma) broken, but it was just barely broken. SPX ran up to 2754, but then declined to close just seven points above the 50 dma. Tomorrow’s open will confirm whether resistance at the 50 dma has really been broken. SPX's closing low on 2/8 at 2581 represents a 10.2% correction from the high of 2873 on 1/26. Technical analysts normally categorize corrections as declines around 10%, so this is in the expected ballpark. Friday’s close has recovered about half of the decline.

Is the correction complete? Is it safe to seek bargains in the market? The price action this week would certainly suggest that conclusion. But don’t jump too fast. The opening tomorrow morning will be critical. This week will be the opportunity for a possible retest of the lows. Pull up the price chart for SPX during the last severe correction in December 2015. That correction was initially 10.5%, but the retest about three weeks later took the correction to 12%. It required nearly four months to fully recover. By contrast, the strength of the recovery last week was significant at 50% or more on all major market indices. That initial bounce back in February 2016 was weak, about 81 points or a 37% recovery.

Market analysts agree that the economic fundamentals are strong. The earnings announcements for the fourth quarter have been consistently strong. If anything, some analysts are starting to fret that earnings are growing too fast.

The Russell 2000 Index (RUT) closed Friday at 1544, recovering over half of its 9.1% loss since RUT’s high on 1/23. The 200 dma served as the solid support level for the Russell index. It was touched on 2/6, and the close two days later was just above the 200 dma. Although the 200 dma was broken intraday on 2/9, the close was well above the 200 dma and RUT’s recovery was underway.

The NASDAQ Composite traded similarly to RUT but remained 75 points above the 200 dma at its lowest point intraday on 2/9. NASDAQ’s trading volume fell off this week, trading at or below the 50 dma all week. As of Friday, NASDAQ had recovered 76% of its losses.

The volatility index of the S&P 500, VIX, opened the week at 27.3% and closed yesterday at 19.5%. The closing high for VIX during this correction was 37.3% on Monday of the previous week, although VIX hit 50% intraday on Tuesday, 2/6. Friday’s close just under 20% brought VIX back to the 20 dma in the middle of the Bollinger bands. That level of the volatility index certainly isn’t low. We aren’t out of the woods yet. If the market turns to test those lows, we could see VIX spike again before things calm down.

The U.S. exchanges are closed today. Asian markets rallied overnight, but Europe is flat to slightly down today. The U.S. markets have established six positive market days since the low on February 8th, so I am inclined to think we have seen the worst of this correction. SPX and RUT have recovered about half of those losses at this point, and NASDAQ has recovered about three quarters of the correction loss. Given the past six positive days, it wouldn’t be surprising to see the markets trade sideways or even pull back modestly tomorrow. The positive to slightly negative price action on global markets overnight and today supports that conclusion. My opinion is that we have seen the worst of this correction. I am beginning to establish new positions. The Apple diagonal spread I entered for our trading group is just one example. But I remain cautious.