The Standard and Poors index (SPX) set the low of this recent pullback last Friday with an intraday low of 4495, but it was encouraging to see the S&P 500 recover almost half of the day’s losses before the close. SPX opened at the 50 day moving average (dma) Monday morning and traded higher. Tuesday brought us a huge present with a large gap opening higher and the index continued to trade higher into today’s close at 4712, up one percent on the day and up nearly 4% for the week. SPX opened at 4712 on 11/22 and declined from there to initiate this latest pullback. Today’s close was precisely back to that opening price of 11/22. Trading volume in the S&P 500 companies steadily declined all week, falling below the 50 dma on Wednesday and declining to 2.1 billion shares today.

VIX, the volatility index for the S&P 500 options, closed at 18.7% today, after opening at 29% on Monday. It appears that we have recovered from this latest pull back, although this year has trained us to hesitate before declaring it safe to go outside again. It appears that the storm is over, but…

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 is the fly in the ointment of the otherwise positive S&P 500 market assessment. IWM closed today at 219.91, down 0.61 points or 0.3%. IWM opened the week at 219.91 and rose 1.6% for the week. IWM recovered its 200 dma on Tuesday but broke back below it on Thursday and traded even lower today.

The NASDAQ Composite index closed today at 15,631, up 113 points or 0.7%. NASDAQ opened the week at 15,118, setting up a gain of 3.4 percent for the week. Trading volume declined steadily this week, moving below the 50 dma on Wednesday and remained below average for the balance of the week. NASDAQ’s trading volume declined 35% this week.

This week of trading at least served to give us hope that the latest pull back is behind us, but it is impossible to be sure. It is always challenging to predict market direction, but this year has set records for capriciousness. I looked at the SPX price chart for the year and counted a minimum of nine of these 
mini-corrections this year. None of them were severe, but they have been sufficient to hit many of my stops and sent me into red ink. All of my trading services are posting positive returns year-to-date, but the results aren’t what I would like. These frequent pull backs take their toll.

I admit that I am of two minds about this market. On the one hand, I feel that the media and the politicians have scared everyone to death. One of the results is that the market pulls back on any negative covid news, whether it makes sense or not. On the other hand, I can’t believe the market is continuing to set new highs this year with an extremely fragile economy, high inflation, and staggering national debt.

If we use the S&P 500 index as our measure of market health, it has solidly recovered its 50 dma and is only a couple of points off the highs set earlier in November. That chart leaves me feeling that the storm is over. However, when I turn to NASDAQ, the picture isn’t nearly so positive. NASDAQ has recovered its 50 dma but it remains about one and a half percent below the highs set earlier in November. And my countenance really drops when I look at the Russell 2000 index. It remains well below its 200 dma and has not even come close to recovering its 50 dma.

Investors Business Daily (IBD) continues with its Market In Correction assessment. The FOMC will meet this coming week. Any talk of raising interest rates will spook traders. Perhaps the conclusion is simply that the market isn’t likely to trade much higher from here; the bulls will do well just to hold the market roughly in place. But fear mongering and dysfunctional politics will continue to contribute to a choppy sideways market with frequent pullbacks leading to transient recoveries. I don’t think calmer waters are in the forecast. It will remain a challenging market to trade.