The Standard and Poors 500 index (SPX) closed today at 4450, losing 55 points on the day or 1.2%. SPX opened the week at 4481 for a weekly loss of 0.7%. SPX managed to break out above the 50-day moving average (dma) yesterday but gave that up decisively today, closing at 4450, 33 points below the 50 dma at 4483. Trading volume spiked today due to the simultaneous expiration of stock options, index options, and stock index futures. This occurs quarterly on the third Friday of March, June, September and December, and is sometimes still referred to as quadruple witching even though single stock futures are no longer traded.

VIX, the volatility index for the S&P 500 options, declined steadily this week, closing yesterday at 12.8%. VIX appeared to continue that trend this morning, opening at 12.7%, but then it spiked to 14.2% before settling at 13.8% at the close.

I track the Russell 2000 index with the IWM ETF, which closed today at 184, down two points or 1.1%. IWM opened the week at 185 for a loss of 0.5% for the week. IWM touched its 200 dma on Wednesday and today's low was very close the that support level. I follow the Russell 2000 because these high beta stocks are effectively the canaries in the coal mine. They haven't fallen off their perches, but they are twitching.

The NASDAQ Composite index closed today at 13,708, losing 218 points or 1.6% today, and also losing 1.3% for the week. NASDAQ recovered its 50 dma at 13,881 yesterday but today’s close broke well below the 50 dma and came close to the low of 13,749 set on Thursday of last week. NASDAQ’s trading volume spiked today due to triple witching.

The broad market hit highs toward the end of July, but then gave all of those gains back by the third week of August. Then it struggled to recover to a lower high by the first of September, then fell again to a low on 9/8 and today’s close was very close to that low last week. We were all taught the basics of defining a trend: a bullish series of higher highs and higher lows or a bearish series of lower highs and lower lows. The picture isn’t perfectly bearish, but it isn’t pretty.

The S&P 500, NASDAQ Composite and the Russell 2000 have all posted weekly losses both of the last two weeks and are consistently below their 50-day averages. The worst chart belongs to Russell, struggling to remain above its 200-day average. Note the small lower shadows on today’s candlesticks in SPX and NASDAQ. There aren’t many buyers willing to buy those lows of the day. Traders may be waiting on the FOMC announcement next week, but the mood is dark.


Note the CPI and PPI reports from earlier this week. Inflation appears to rising again. The FOMC is being squeezed. A rising inflation rate may dictate another hike in the discount rate. But higher interest rates are hurting banks as prices of low interest treasury bonds on their balance sheets are declining. Another rate hike may push some of the smaller regional banks over the edge. The Fed is caught in a classic dilemma.

It is only prudent to limit our exposure to this market.