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The Standard and Poors 500 Index (SPX) traded steadily higher this week, closing Friday at 3014, up 1.1% for the week. Friday’s trading seemed a little subdued in the morning, but rallied late in the day to push to a new all-time high at 3014. But new all-time highs must be tempered by the weak trading volume. Trading volume in the S&P 500 companies started July almost precisely at the fifty-day moving average (dma) of 2 billion shares. But that was the high for the month thus far. The low trading volume after the holiday last week was to be expected, but trading volume has continued to meander along at low levels this week. This isn’t the sign of a confident bull market.

VIX hit an intraday high on Tuesday at 14.7%, but steadily declined the balance of the week, closing the week at 12.3%. VIX is often called the fear indicator and the market is not panicked by any measure, but it isn’t perfectly calm either. This is a bullish, but nervous, market.

Market analysts watch the small cap stocks carefully as a measure of the market’s comfort with taking on more risk. The Russell 2000 Index (RUT) is composed of small to mid-capitalization domestic companies. Russell closed the week essentially unchanged at 1570 after opening the week at 1574. In fact, without Friday’s strong intraday move of eleven points, RUT would have posted a very negative week. This stands in contrast to the steady gains of the S&P 500 stocks. Russell’s price chart is another indicator of a nervous market.

The NASDAQ Composite index paralleled trading in the S&P 500 this week, setting a new all-time high on Friday at 8244. The pattern in trading volume was also similar to SPX, coming in below the 50 dma since the first of July, and even declining the last three days of this week. NASDAQ set a new all-time high, but without much conviction.

The broad market indices are being cautiously held up by reasonably positive reports concerning the trade negotiations with China, but that could change at any moment with the next news story or rumors from either side of the table.

The prospects of a decrease in the federal discount rate at the upcoming FOMC meeting on July 30-31 is encouraging a bullish mood for the markets, but I think that prospect is unlikely. Interest rates are historically low, and lowering rates is one of the most powerful tools available to the Fed. Basic economic data would have to send up some alarms before the Fed pulls that lever. And economic data is positive on virtually all fronts.

That leaves the China trade negotiations as our principal concern. Given the fact that it could rain on that parade at any moment, the nervousness of this market is not surprising. We see the signs in three principal areas:


•    Consistently low trading volumes
•    Modestly higher volatility
•    Sideways trading in the small caps, as represented by the Russell 2000

Therefore, my outlook remains unchanged. Trade with expectations of a sideways to slightly bullish market, but be prepared to hit the stops earlier rather than later.

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The Standard and Poors 500 Index (SPX) declined over the first three days this week, but recovered most of those losses by the end of the week, closing at 2942 today, essentially flat for the week (actually down nine points or 0.3%). The recovery over the past two days seems to suggest that traders are expecting a resolution to the trade negotiations this weekend.
Trading volume ran below average all week, until today when volume spiked to 2.7 billion shares, well above the 50-day moving average (dma) at 2.0 billion shares. I find it curious that we have seen trading volume spikes for the past two Fridays, but below average volumes in between those spikes. Is this the result of bullish expectations for trade news over the weekends?

The volatility index for the S&P 500 options, VIX, was running above 16% earlier this week, but declined to close at 15.1% today. That puts volatility right on the edge. Values below 15% are reasonably complacent, but higher values start to get my attention. The markets are bullish, but not relaxed and confident either.

The Russell 2000 Index (RUT) gapped open higher this morning, closing up twenty points at 1567. In two trading sessions, Russell wiped out four days of losses. This is the most bullish signal we have observed in the small cap index in some time. This is very encouraging because the small caps normally lead bull markets higher. But we need to get a trade deal done with China before we jump on the bulls’ bandwagon.

The NASDAQ Composite index gapped open higher this morning and closed at 8006, up 38 points. NASDAQ outperformed SPX in trading volume with a huge spike up to 4.1 billion shares, well above the 50 dma at 2.1 billion shares. The China trade negotiations continue to be the principal dark cloud hanging over this market. The prospect of an agreement this weekend encouraged traders, resulting in today’s spike in the markets on increased volume.

But that bullish attitude may be premature. Until we see a definitive resolution of the China trade negotiations, this market will be volatile. And that may be especially true this coming week. Even if we have a confirmed trade agreement on Monday, it isn't clear which way this market will move. I remain very cautious.

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This is the key question that keeps coming up since the first of the year. The Standard and Poors 500 Index (SPX) broke down through the 200-day moving average (dma) on March 8th, but immediately turned back higher and closed this past Thursday at 2855, a market high since the September and October highs before the corrections last fall. In total, SPX had gained 504 points or 21% since the low point on December 24th. But then the market tumbled Friday and, even more ominously, closed at its low for the day at 2801, down 54 points or 1.9%.

Before we panic too much, let’s check the trading volume. Volume rose slightly this week, but it barely exceeded the 50 dma, even on Friday with this perceived run for the exits. I conclude that we are seeing some minor profit taking, not wholesale unloading of positions by the large institutional trading firms.

The S&P 500 volatility index, VIX, increased slowly this week and spiked Friday up to 17.5% before pulling back to close at 16.5%. This level of volatility doesn’t reflect panic mode at all, but it is moderately cautionary. Economic data and corporate earnings remain very positive, but the trade negotiations with China worry traders. The growing economic slowdown in Europe has raised concerns about possible negative effects on our economy.

The Russell 2000 Index (RUT) continues to trade more weakly than the broad market. RUT never did break through the 200 dma, and after Friday’s sell off, Russell has even broken below its 50 dma. Russell closed Friday at 1506, down 56 points or 3.6%. By contrast, the S&P 500 declined 1.9% on Friday. Russell’s weakness is the principal bearish signal for the current market.

The NASDAQ Composite index closed Friday at 7643, down 196 points or 2.5%. NASDAQ remains well above its 200 dma at 7490, but remains far off of the September and October highs around 8100. Trading volume in the NASDAQ stocks rose steadily this week and spent the last four days of the week above the 50 dma.


Corporate revenues and earnings reported during this earnings cycle have been excellent, but traders are worried about the Mueller probe, the China trade negotiations, and slowing economic conditions in Europe. With the release of the Mueller investigation report Friday, we may put some of these anxieties to rest, although I expect much of the political turmoil to continue. The trade negotiations with China may be making progress, but that isn’t clear. I think this remains the primary concern for market analysts. All of these factors will result in continued market volatility.

In volatile markets, the best advice is cautionary. When you face a choice in your investments, take the conservative alternative.

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The Standard and Poors 500 Index (SPX) came back to life and took another step higher this week, closing at 2950 today and up 2.1% for the week. SPX is attempting to break out above the highs set in early May, but thus far that resistance level is holding. S&P 500 trading volume rose with the bull market this week. Today’s volume spiked up to 2.9 billion shares, much higher than the 50-day moving average (dma) at 2.0 billion shares. One must go back to March 15th to find higher trading volume figures.

This week’s bullish run resulted in SPX running just below the upper edge of the Bollinger bands for the last four days of this week. Will next week repeat the pattern of the past two weeks and take a pause after this week's run higher? A slower rate of increase is probably the best the bulls may expect, but a flat week of treading water may be more likely in view of the G20.

The volatility index for the S&P 500 options, VIX, declined early in the week, as one might expect in a rising market. But the situation changed yesterday. VIX hit an intraday low of 13.2%, but then moved up to close at 14.8%. Today’s market took volatility a bit higher, closing up a little over half a point at 15.4%. This is a VIX divergence, with VIX moving higher as the market moved higher. This often foretells a drop in the market in the next trading session.

The Russell 2000 Index (RUT) has steadily traded higher since June 1st. In fact, RUT’s pattern of gains has been steadier and more consistent than SPX or NASDAQ. Russell gained 1.8% this week, but traded lower today, closing down 14 points to 1550.

The NASDAQ Composite index closed today at 8032, down 20 points, but rose 2.7% this week. On Tuesday, NASDAQ gapped open higher and solidly broke through its 50 dma. Perhaps more importantly, NASDAQ held that breakout through the rest of the week. Similar to SPX, NASDAQ’s trading volume spiked today to 2.9 billion shares, well above the 50 dma at 2.1 billion shares.

We enjoyed a pretty strong bull market this week, but several warning signs are concerning:

•    Today’s trading volume spiked on a weak market, and this was amplified by the same pattern in SPX and NASDAQ.
•    The volatility divergence for the past two trading sessions; VIX is trading higher with a flat to increasing market.

•    Russell declined more strongly today, as compared to SPX and NASDAQ.

Today’s spike in trading volume could represent some profit taking as the large institutions saw the market flatten. They also may be hedging their bets ahead of the G20 Economic Summit and that may be raising VIX as they buy protection.

The China trade negotiations are the principal dark cloud hanging over this market. The announcement that Trump will meet with Xi Jinping while attending the G20 buoyed the market, but I think traders worried about it as the week wore on. A scheduled meeting is certainly a positive development, but it doesn’t guarantee an agreement on terms to end the trade tariff threats.
I expect this next week’s market to trade flat or possibly even slightly lower simply as traders pause to wait for news from Trump and Xi. I remain in a moderately bullish, but cautious stance. Until we see a definitive resolution of the China trade negotiations, this market will be volatile. And that may be especially true this coming week.

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The broad markets slowed this week, with the Standard and Poors 500 Index (SPX) closing Friday at 2804, up 19 points for the day, but dead flat for the week. It appears that SPX bounced off resistance around 2817, the highs reached in mid-October and early November after the first couple of downdrafts last fall. It will be difficult for the market to make new highs until the trade negotiations with China reach a conclusion. Trading volume on the S&P 500 continues to run well below average, but trading volume broke above the 50-day moving average (dma) on Thursday’s decline. It is a nervous market.

The S&P 500 volatility index, VIX, closed at 13.5% on Friday, almost precisely at its close the previous Friday. Volatility rose this week as the market weakened, but then declined Friday as the market strengthened. This level of volatility is far from calm and complacent, but not really alarming either. It just underscores the cautious nature of this market.

Whereas the S&P 500 index solidly broke above its 200 dma last week, the Russell 2000 Index (RUT) cannot quite make that break higher. This week’s trading just tracked sideways along the 200 dma. The severity of last fall’s corrections is evident in RUT’s chart with the 50 dma so far below the 200 dma. The gap is closing, but remains significant.

The NASDAQ Composite index closed Friday at 7595, up 63 points. NASDAQ confirmed last week’s break out above its 200 dma by consistently trading above the 200 dma all week. Wednesday’s weakness bounced off the 200 dma to recover for a gain and close higher.

My analysis of the market’s condition remains the same as the past several weeks. The series of corrections that lasted through December 24th were not founded on solid economics. The excellent revenues and earnings reported during this earnings cycle are exceptional, but you wouldn’t know it from the broad market averages. The market has recovered significantly, but the China trade negotiations remain the largest worry for market analysts.

My market index iron condor positions are all profiting from this slowly rising and almost sideways market. We now have booked a full year with no losses.

In spite of the overall market being rather sluggish this week, a few stocks continue to make new highs. CYBR, LLY, IBRT, and XLNX all were called away from me this week because the stock price had traded so much higher that I could not roll the calls out for a reasonable credit.

Until we see a definitive resolution of the China trade negotiations, this market will be volatile. Some stocks are trading bullishly in spite of the overall market. Be picky and be cautious.