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.