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This week's relatively calm trading was certainly a welcome change. The Standard and Poors 500 Index (SPX) closed today at 2656, up about 1.5% for the week, so we celebrated a positive week for a pleasant change. I heard some analysts begin to celebrate the S&P 500 moving back into positive territory for the year this morning, but that hope was short-lived. We came close, but the market retreated into the close. SPX remains down 1% for this year. At least we didn’t have any stomach-wrenching declines this week. At this point, that fact alone is worth celebrating.

Trading volume in the S&P 500 stocks declined all week. That isn’t encouraging. The next big resistance level is the 50-day moving average (dma) at 2599. Institutional traders will be watching for that break-out before “going all in”.

Trading in the Russell 2000 Index (RUT) matched its big brothers this week, climbing out of the hole, but then pulling back today.

SPX’s volatility index, VIX, declined steadily this week, closing today at 17.4%. You have to go back to the middle of March to find a lower value of VIX. That reflected the calming effect of this week’s trading.

Several of the large banks announced earnings this morning and the large prominent names did very well. Citibank, JP Morgan and Wells Fargo all beat their earnings estimates. Those stocks traded higher in the pre-market but gave up those advances during the day. That is not a good sign. Perhaps traders are worried that excellent earnings growth will prompt the Fed to raise interest rates even more aggressively to keep inflation in control, but perhaps at the expense of the economy’s growth.

The price to earnings ratio for the S&P 500 is now at 16.1, right at the five-year average. That would seem to suggest this pullback has had the expected sobering effect on the market. But the reaction to the large banks' positive earnings may suggest that positive earnings won’t be enough during this earnings cycle. FactSet reported that earnings estimates have grown from an average of 11.4% growth on December 31st, to 17.3% today. That level is unprecedented and should be very bullish for the market. The essence of stock price evaluation is derived from the projected future cash flows of the stock.

I have been slowly testing the waters a bit. The Apple diagonal spread we entered in the trading group last week is doing very well, now up 52%. The NFLX calendar spread we entered as a play on earnings is doing well. But I remain cautious. Today’s reaction to the banks' earnings and the declining trading volume all week are my principal concerns.