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The Standard and Poors 500 index (SPX) closed yesterday at 4072, down less than five points on the day but up 1.7% for the week. With the exception of the trading volume spike on Wednesday, volume has run well below the 50-day moving average (dma) at 2.6 billion shares. The week closed with 2.1 billion shares traded.
VIX, the volatility index for the S&P 500 options, opened the week at 22.1% and declined all week to today’s close at 19.1%. VIX opened 2022 at 17.6% and hit highs over 35% several times. Friday’s close was slightly lower than the previous low in August but above the April low of 18.5%.
I track the Russell 2000 index with the IWM ETF. IWM closed Friday at 188.05, up 1.09 on the day, and up 2.1% for the week. IWM has held up with three closes above its 200 dma but is encountering resistance around 189 from highs set in September and mid-November.
The NASDAQ Composite index closed at 11,462 yesterday with a loss of 21 points or 0.2% but closed the week up 2.8%. NASDAQ’s trading volume spiked on the large gain on Wednesday but declined the rest of the week, closing below the 50 dma.
The period from Thanksgiving into the first of the year has historically been bullish and small caps have historically outperformed the blue chips over this period of time. Although trading was technically up this week, the market was very choppy. The S&P 500 index has managed to hold above the 200 dma, but we are off to a weak start for the Santa Claus Rally.
Trading volume remains well below average, suggesting that the large institutions and hedge funds are waiting on the sidelines for a clear direction to solidify.
SPX hit its low for the year on October 13th with a decline of 27% from the year’s opening. The market has risen 17% from that low to yesterday’s close. But this rise has been erratic and choppy. It doesn’t instill confidence. I remain largely in cash, but I am entering a small number of trades when I see opportunities. However, I am taking profits and closing out losses quickly.
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The Standard and Poors 500 index (SPX) closed this holiday shortened week at 4026, down 1.1 point on the day, but up 1.8% for the week. Trading volume was typical of Thanksgiving week with many traders on holiday. The period between Thanksgiving and the end of the year is traditionally bullish and this week appears to be following that trend, but this is an unusual year for the country and the economy. Volume ran below average all week and came in at 893 million shares today, well below the 50-day moving average (dma) at 2.6 billion shares.
VIX, the volatility index for the S&P 500 options, opened the week at 24.1% and declined all week to today’s close at 20.5%.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 185.58, up less than half a point on the day, but IWM rose 1.5% this week. IWM broke through its 200 dma on Wednesday and held that level today.
The NASDAQ Composite index was essentially unchanged today, closing at 11,226, up only 59 points or less than half a percent. NASDAQ’s trading volume ran well below the 50 dma all week and traded only 2.2 billion shares today with the 50 dma at 4.75 billion shares.
Using the S&P 500 as our proxy for the market as a whole, the bullish rally that began on November 10th was stopped by the bears last week, but the support level at 3900 held (that support level was the high of the October rally that was stopped on November 1st).
Traditionally, the period from Thanksgiving into the first of the year has usually been bullish and small caps have outperformed the blue chips. So, this may be a reasonably bullish period for the market, even though we are far from being able to say the bear market has been broken.
To put things in perspective, The S&P 500 opened the year at 4797, declined and then rallied back to 4632 on March 29th. The latest rally took SPX to 4305 on August 16th. Today’s close is 16% below the high at the beginning of the year. Even if this bullish period culminates in the classic Santa Claus rally at the end of the year, we aren’t out of the woods yet. My caution will continue until we reclaim that SPX high of 2022.
However, I am trying pick off some low hanging fruit from now until the end of the year. But my finger is on the button for the escape hatch. I remain largely in cash, trading small, and taking profits whenever I can.
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The Standard and Poors 500 index (SPX) gapped open higher on Thursday recovering the losses on Wednesday. SPX closed today at 3993, up 37 points or +0.9% on the day and up 5.6% for the week. Trading volume ran below the
50-day moving average (dma) early in the week and spiked higher on Thursday’s strong run higher.
VIX, the volatility index for the S&P 500 options, closed down today at 22.5% after opening the week at 25.7%. The largest decline in the week was on Thursday as the market spiked higher.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips all week, down on Wednesday and then spiking higher on Thursday. IWM closed today at 186.90, up 1.52 points or 0.8%, but up a full four percent on the week.
The NASDAQ Composite index closed today at 11,323, up 209 points or 1.9%, and up 7.7% on the week. NASDAQ’s trading volume spiked higher on Thursday’s strong bullish run but fell below the 50 dma today.
The market has been focused on two issues: record rates of inflation and the fear that the Fed would raise interest rates too aggressively to curtail inflation. Last week’s FOMC announcement pushed more analysts into the hard landing camp and the market responded negatively. The election results appeared to initially disappoint traders with a weak day on Wednesday. But the other core issue worrying the market has been the record rates of inflation and the CPI report this week provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%.
I believe the decline in the CPI numbers encouraged traders that the Fed may be more inclined to moderate their rate hikes. However, all it will take is some hawkish comments from a Fed member to scare the market. I expect the extreme price volatility we have seen all year may continue.
The markets traded to a high on September 12th before entering this latest decline. At today’s close, SPX is 3.2% below those highs, NASDAQ is 8.4% below and IWM is only 1.1% below. The most bullish point here is how close the small to mid-cap stocks of the Russell 2000 (IWM) are to the earlier highs in September. IWM actually pulled back from that resistance level today. Those most recent highs are the next significant hurdle for the bulls.
This economy is far from healthy and one good CPI report doesn’t provide much confidence. I am testing the waters with a couple of bullish trades, but I remain cautious.
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The Standard and Poors 500 index (SPX) posted a classic doji candlestick on Friday with a close at 3695, up 0.5% on the day and down 0.3% for the week. Doji candlesticks are signals of indecision as the bulls push the market higher, only to have bears pull it back lower, and the market closes very close to where it opened. The bulls and bears are at a standoff. SPX essentially traded sideways this week with a high of 4029 and a low of 3907. Trading volume ran below the 50-day moving average (dma) all week with a minor exception on Tuesday.
VIX, the volatility index for the S&P 500 options, closed down yesterday at 23% after opening the week at 24%. Volatility effectively tracked sideways for the week with a high at 26% and a low at 23%, consistent with market trading action.
The NASDAQ Composite index closed Friday at 11,146, essentially flat with a rise of only one point, but down 0.8% for the week. NASDAQ’s trading volume spiked higher on Tuesday’s strong bullish run but declined the balance of the week.
The market continues to focus on record rates of inflation and fear that the Fed will raise interest rates too aggressively to curtail inflation. Last week’s CPI report provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%. That prompted the bulls to push the market higher, reasoning that the Fed would relax their pace of rate hikes and the economy would begin to fire on all cylinders.
A couple of hawkish comments from FOMC members threw cold water on those expectations for the Fed slowing their rate hikes and the market stalled. The good news is that a new bearish downtrend didn’t occur. Thus far, the market is churning sideways on declining trading volume. My assessment is that the large majority of institutional traders are essentially sitting on the sidelines, waiting for a clear signal one way or the other.
Market analysts expect corporate earnings to take a hit as companies are unable to pass through the price increases they are incurring. Earnings growth for the third quarter of 2022 grew 2.2%, the lowest rate of growth since Q3 2020. Analysts expect stock prices to decline further to compensate for the decline in earnings.
Whether we like it or not, the economy is in recession. We clearly have a large number of able bodied Americans who are choosing not to work. Today, I saw a sign at Walgreens offering a starting bonus of $1,250 for a pharmacy technician.
I remain largely in cash, trading small, and taking profits whenever I can.
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The Standard and Poors 500 index (SPX) recovered earlier losses in the week and closed up 51 points at 3882, up 1.4% on the day and up 2.9% for the week. Trading volume ran at or above the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed down today at 24.6% after opening the week at 26.9%. Even though the market declined significantly after the FOMC announcement, VIX steadily declined all week. This divergence was an early signal that the decline earlier in the week wasn’t likely to continue today.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied 1.4% to close at 178.68. But IWM remains down nearly two percent for the week. IWM’s rise yesterday was another signal that the decline earlier in the week wasn’t likely to continue.
The NASDAQ Composite index closed up 1.3% at 10,475 but remained down five percent for the week. NASDAQ’s trading volume fell below the 50 dma today.
The market has been focused on two issues: record rates of inflation and the concern that the Fed would raise interest rates significantly to curtail inflation. Market analysts have been debating whether the Fed policies will result in a so-called soft or hard landing for the economy. This week’s announcement has pushed more analysts into the hard landing camp.
The key question now is the degree to which earnings will be decreased by the record rates of inflation. The most fundamental analysis of a stock price is to view it as the price of the time adjusted cash flow for the stock’s business. Hence, if earnings are declining, the stock price must decline. Higher interest rates exacerbate this decline.
This week’s announcement of another 75 basis point increase in the federal discount rate was priced into the markets – no surprise there. However, Powell’s comments during the press conference spiked worries that more rate hikes are coming. Markets rose initially but then plummeted. Yet the VIX declined. This VIX divergence was a signal that the market consensus has not panicked.
I am not in the camp of the “sky is falling” bears, expecting a severe market crash, but I can’t be bullish in the middle of a recession. My recommendation remains to stay on the sidelines.
