- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2609
The Standard and Poors 500 index (SPX) closed today at 3862, down 57 points on the day or -1.5%. SPX opened the week at 4055 for a weekly loss of 4.8%. SPX broke down through the 50-day moving average (dma) on Thursday and broke through the 200 dma today. This is serious. Trading volume ran below the 50 dma through Wednesday, but then increased on Thursday and spiked much higher today.
VIX, the volatility index for the S&P 500 options, spiked upward today to 29% before settling down to close at 25%. VIX opened the week at 19% for a weekly increase of 32%. The market is spooked by the prospect of a large number of bank failures. But it is worth noting that VIX pulled back from that spike at 29% before the market closed. That may be evidence of traders panicking and hitting the sell button too quickly, or it could be the beginning of something much more serious.
I track the Russell 2000 index with the IWM ETF, which closed today at 176.18, down 5.2 points or 2.9% on the day and down 8% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today.
The NASDAQ Composite index closed at 11,139 today with a loss of 199 points or -1.8%, and a weekly loss of 5.1%. NASDAQ broke down through its 200 dma yesterday and broke the 50 dma today. NASDAQ’s trading volume ran along the 50 dma all week and spiked higher today.
Recall my comments from last week: “The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday; his comments could change everything.”
Powell’s comments did cause some market weakness, but the surprise failure of the Silicon Valley Bank spooked the markets to the core. Suddenly everyone is talking about the financial collapse of 2008. The doomsday gurus are out in force. However, I think this is a typical overreaction. There is some measure of truth in the danger of rising interest rates on holders of large quantities of low yielding treasury bonds, but I think a specialty bank like Silicon Valley Bank is much different than J.P. Morgan Chase.
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 (IWM) are all flashing similar danger signals. SPX is down 1.5% today and down 4.8% for the week. Similarly, NASDAQ is down 1.8% today and down 5.1% for the week. And IWM is down 2.9% today and down 8.0% for the week. All three indices have broken down through their 50 and 200 day moving averages.
The next FOMC meeting is scheduled for 3/21 and 3/22. Before the Silicon Valley Bank failure, the general consensus for that announcement was a 50-basis point increase in the federal reserve discount rate. This bank failure may give the hawks on the FOMC a pause. They don’t want to be blamed for a large-scale financial collapse in their quest to control inflation.
Even if I am correct about today’s move being an overreaction, I don’t see much solid economic data to cause a quick or significant bounce next week. If anything, the fear of the Fed announcement the following week will keep traders treading water.
Stay largely in cash. This could get rough.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1244
The Standard and Poors 500 index (SPX) closed Friday at 4046, up 64 points on the day or +1.6%. SPX opened the week at 3992 for a weekly gain of 1.4%. With the exception of Tuesday, trading volume ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed Friday at 18.5%. VIX opened the week at 22% and declined steadily. Before I run off on a bullish charge, I have reminded myself that we have seen VIX at these levels several times this year. This market remains volatile and dangerous.
I track the Russell 2000 index with the IWM ETF, which closed Friday at 191.50, up 2.6 points or 1.4% on the day and up 1.3% for the week. Friday’s trading decisively broke out above the failed rally highs of November and December.
The NASDAQ Composite index closed at 11,689 yesterday with a gain of 226 points or +2%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran along the 50 dma all week.
The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday, and his comments could change everything.
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 all gained about one and a half percent this week. Traders were closely watching the resistance levels established in November and December by the failed recovery highs. NASDAQ and Russell broke those levels last week, but the S&P 500 index lags behind.
The consensus of economists is for a 50 basis point increase in the federal discount rate at the FOMC meeting later this month. The announcement is scheduled for 3/22. The market is focused on two issues:
· The need to get inflation under control.
· The concern that the Fed may raise rates too aggressively and drive the economy into recession.
Powell’s comments before Congress on Monday will be watched very closely and will likely result in market volatility. Don’t go too far out on the thin ice. Stay cautious.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1135
The Standard and Poors 500 index (SPX) closed Friday at 4079, down 11 points on the day or -0.3%. SPX opened the week at 4097 for a weekly loss of 0.4%. Resistance at 4100 was set by the failed rallies in December and that level was solidly broken with a high at 4195 on February 2nd. This week witnessed a rally attempt that made it to 4150 before faltering and closing well below support at 4100. Trading volume ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened the week at 21.7% and declined to 18.1% on Wednesday. Comments from a couple of the FOMC members on Thursday spiked volatility to 20.3%. VIX declined on Friday to close down slightly lower at 20.0%.
I track the Russell 2000 index with the IWM ETF, which closed Friday at 193.13, up 0.3% on the day, but up 1.4% for the week. IWM had a remarkable week, posting positive trading gains every day this week. In contrast to the S&P 500 index, IWM found support at the failed rally highs of November and December and steadily climbed higher this week.
The NASDAQ Composite index closed at 11,787 yesterday with a loss of 69 points or -0.6%. NASDAQ trended higher the first three days of this week but declined with the S&P 500 index on Thursday and Friday. NASDAQ’s trading volume ran below the 50 dma all week. Unlike SPX, NASDAQ remains well above the support levels of the failed rally attempts in November and December.
Comments from two FOMC committee members threw cold water on the market on Thursday, renewing fears that additional rate hikes are in store. Of course, the strong numbers from the CPI and PPI reports didn’t help. Those reports support the Fed’s case that more rate hikes may be required to get inflation to subside. The next Fed discount rate announcement is scheduled for March 22nd.
The most encouraging sign in the markets this week is the strength shown in the Russell 2000 this week. Those small to midcap stocks are the classic high beta stocks that the large funds tend to move into when they foresee a bullish market.
Trading volume has again fallen below the 50 dma. Note the spiking trading volume around February 2nd when the market broke through resistance to the upside. That money has returned to safety.
I will be watching the markets carefully on Tuesday for signs of strength. I noted the long lower shadows on the SPX and NASDAQ candlesticks for Friday. That often shows that traders sold off and drove prices lower but then met a group of buyers who found those prices attractive. We will see if that action follows through on Tuesday.
This market looks somewhat better than last week, but it is entirely too early to say the bear market is over. Stay vigilant.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1370
The Standard and Poors 500 index (SPX) closed Friday at 3970, down 42 points on the day or -1.1%. SPX opened the week at 4052 for a weekly loss of 2.0%. Trading volume ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed Friday at 21.3% after spiking as high as 22.9%. VIX opened the week at 21.8% with minimal change for the holiday shortened week. That was surprising given the weakness of the market.
I track the Russell 2000 index with the IWM ETF, which closed Friday at 187.51, down 1.8 points or 0.9% on the day and down 1.7% for the week. IWM stood out last week, finding support at the failed rally highs of November and December. That support level was broken yesterday.
The NASDAQ Composite index closed at 11,395 yesterday with a loss of 195 points or -1.7%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran below the 50 dma and steadily declined all week.
Last week, comments from two FOMC members and strong numbers from the CPI and PPI reports appeared to support the prospect that more rate hikes may be required to get inflation to subside. The PCE price index report this week reinforced that fear and led to more selling.
The S&P 500 index fell 2.0% this week; NASDAQ declined 2.1% and the Russell 2000 dropped 1.7%. Traders were closely watching the support levels established in December by the failed recovery highs. SPX broke that level last week; the Russell 2000 index broke down on Tuesday and NASDAQ broke down on Friday.
The market is selling off because it fears continued rate increases by the Fed will drive the economy into recession, the often cited “hard landing”. The next Fed announcement is scheduled for 3/22 and all evidence suggests another rate increase. The only debate is the amount. The March FOMC announcement will most likely trigger another sharp market decline. Is this month’s market decline the result of the large institutional players pulling back and hedging their portfolios in preparation for that announcement? Using the S&P 500 as our market proxy, a decline of 12% from Friday’s close would return to the lows around 3500 from last October.
That analysis only leaves us with questions: Will February give back January’s gains? Is the bear market that began in early 2022 beginning a new leg lower? The best course of action is to stay largely in cash and focus on long term
ultra-conservative positions.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1257
The Standard and Poors 500 index (SPX) closed Friday at 4090, up 9 points on the day or +0.2%, but that didn’t save the week, ending down 0.7%. SPX broke resistance at 4100 last week and advanced to a high around 4200 on February 2nd before beginning the pull back that continued this week. This latest rally set a new resistance level a hundred points higher, but the bear market isn’t over yet. Trading volume was mixed all week, running just above and just below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, closed yesterday at 20.5% after opening the week at 19.2%. VIX spiked on Friday to 22% but pulled back into the close at 20.5%.
I track the Russell 2000 index with the IWM ETF, which closed Friday at 190.31, up less than a point on the day, but down 2.7% for the week. Unlike SPX, this latest IWM rally hit resistance around 199, the level set back in August by the failure of that rally. SPX never came close to its August levels. IWM found support on Friday at its January highs around 188.
The NASDAQ Composite index closed at 11,718 yesterday with a loss of 71 points or -0.6%. NASDAQ trended lower this week, losing 1.6%. NASDAQ’s trading volume ran above average three days this week before falling significantly below the 50 dma on Friday.
The FOMC announcement last week, coupled with the positive January Trifecta, seemed to bring the bulls back to the table, but that enthusiasm faded this week. The market broke out above the most recent rally highs last week but could not hold those highs and gave back all of those gains this week. On Friday, I entered bullish trades on ENPH and SLB. Both stocks were trading positively in the midst of a bearish market. Our AAPL diagonal spread is still in the black after a tough week.
This market remains solidly in its bearish posture, having quashed the latest bullish recovery. I am largely on the sidelines at this point.
