The Standard and Poors 500 index (SPX) closed today at 5977, down 68 points or 1.1%. This week’s trading continued the bullish run of the past couple of weeks, but gapped lower today, spooked by the Israeli and Iran war. SPX opened the week at 5977 for a weekly loss of 0.5%. Trading volume for the S&P 500 stocks continues its trend of running below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 17.7% but started increasing on Wednesday and gapped open higher today, closing at 20.8%. The large institutional traders are hedging their gains in light of the military action in the middle east.
I track the Russell 2000 index with the IWM ETF, which closed today at 208.9, down 3.9 points or 2.3%. In addition, IWM gapped down at the opening Thursday and Friday mornings. IWM was down 2.3% this week and all of this negative price action resulted in a 100% spike in trading volume today (25.3M to 60.5M). The high beta stocks of the Russell 2000 index form the canary in the coal mine and may suggest a more challenging market ahead.
The NASDAQ Composite index closed today at 19,407, down 256 points or
1.3%. NASDAQ opened the week at 19,573, setting up a loss of 0.8% for the week. NASDAQ has now given up the past week’s gains. NASDAQ’s trading volume ran at or above the 50 dma all week.
The market gave us some encouragement over the past couple of weeks, but this week’s trading action threw some cold water on early enthusiasm. Consider the data for the broad market indices over the past week:
S&P 500: -0.5%
NASDAQ Composite -0.8%
IWM -2.8%
The losses in IWM (the Russell 2000 index) were the highest by far, reflecting the high beta values of these stocks. Don’t let that tempt you to ignore this warning sign. On both Thursday and Friday mornings, IWM gapped open lower and Friday’s trading volume doubled that of Thursday.
The market is on edge with all of the tariff hype and fear mongering. We see that not only in the wide price swings but also in the SPX volatility index, VIX. VIX had settled down to about 17% by Wednesday but spiked higher to nearly 22% by Friday.
The tariff negotiations, the speed at which the new administration is moving, and now war in the middle east have greatly increased uncertainty on Wall Street. Contrary to conventional wisdom, Wall Street detests uncertainty. The end result is a lot of itchy trigger fingers, both bullish and bearish. Most of my positions are handling these gyrations rather well, but traders would be well advised to keep a close watch.
