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The Standard and Poors 500 index (SPX) spiked higher today and closed up 87 points at 3753, up 2.4% on the day and up 3.1% for the week. Trading volume spiked to three billion shares today, well above the 50-day moving average (dma) at 2.4 billion shares.
VIX, the volatility index for the S&P 500 options, closed down today at 29.7% after opening the week at 32.3%. Even though the market was up dramatically today, volatility did not decline as much as I would have expected. Obviously, traders remain a bit on edge.
I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied up almost four points to close at 172.70, up 2.2% today and up 1.5% for the week. Watching the small cap stocks lead the market higher is encouraging. The question is whether it will hold next week.
The NASDAQ Composite index set a new low for the year last week, down 36%. But today’s strong reversal changed that tune, closing up 2.3% at 10,860, and up 2.7% for the week. However, NASDAQ’s trading volume barely reached the 50 dma today, so I have to wonder if this really is the beginning of a new trend higher.
The market set its new low for the year last Thursday and tried to recover through this past Tuesday, but then gave back much of those interim gains. Today’s market spike returned us to the highs set on Tuesday. The gain on the S&P 500 was accomplished with a strong spike in volume and that convinced the analysts at IBD to move their market assessment from Market In Correction to Confirmed Uptrend.
This year’s trading in the markets may have jaded me, but I am sure I have seen this show before. I jumped in with both feet a couple of times earlier this year and then had my head handed to me. The fact that VIX remains essentially at 30% today, even in the face of a strong day of trading, is a warning sign.
Today’s market surge in the S&P 500 was joined by NASDAQ and the Russell 2000 and that is certainly a good sign. But I remain cautious. My scars are fresh.
My recommendation from last week was to stay on the sidelines until we witness a clear bounce from the June lows. This week’s trading action wasn’t convincing. I respectfully disagree with IBD. Record rates of inflation and a Fed determined to continue raising the discount rate have not disappeared. Last week’s recommendation to stay on the sidelines remains good advice.
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The Standard and Poors 500 index (SPX) set a new low for 2022 yesterday at 3492, down 27% on the year. SPX opened higher this morning at 3690, but could not hold the gains, closing down 87 points at 3583, down 2.4% on the day and down 1.8% for the week. Trading volume spiked to 3.2 billion shares yesterday and remained above the 50-day moving average (dma) today with 2.6 billion shares.
VIX, the volatility index for the S&P 500 options, closed down today at 32% after spiking as high as 35% earlier this week. This level of volatility remains a concern. It seems like we have been saying this all year, but this is a nervous market.
I track the Russell 2000 index with the IWM ETF. IWM did not set a new low for the year on Thursday, which I regard as bullish since the small cap stocks usually lead markets lower in bear markets. IWM closed today at 166.81, down 4.6 points or -2.7% on the day and down 1.5% for the week.
The NASDAQ Composite index set a new low for the year on Thursday at 10,089, down 36%. NASDAQ closed today at 10,321, down 328 points or 3.1% on the day and down 3.2% for the week. NASDAQ’s trading volume spiked above the 50 dma on Thursday but remained below average the rest of the week.
On Monday, October 3rd, it appeared that the market had found support at the June lows. SPX gapped open the next day and set up a series of sideways trading days. Then SPX gapped downward last Friday and proceeded to break the June lows. The market opened much lower this past Thursday but immediately started a strong run higher, led by the financial stocks.
Thursday was a strong day for the markets, but Thursday’s opening set a new market low for 2022. The S&P 500 index touched down at -27%, and NASDAQ recorded a low of -36%. The Russell 2000 index, measured via IWM, did not quite reach its June low at -28%. Normally, the high beta stocks of the Russell 2000 would be leading the race to the bottom, but not this time. That is the only positive sign I can find in this market.
The only new trades I entered this week for the trading group were earnings plays on WBA (+16%), JPM (+17%), and UNH (+28%). Overnight earnings trades incur more risk, but they don’t require the trader to have a conviction for overall market direction. That market assessment has proven difficult to impossible this year.
I closed the October SPX iron condor for the Flying With The Condor™ subscribers for a gain of 23%. That service is up 27% for 2022, compared to the S&P 500 at -23%. This has been an excellent year for non-directional trading. These positions are far enough out of the money to withstand the price volatility typical of this year’s market.
My recommendation is to stay in cash until we witness a clear bounce from the June lows with follow through.
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The FOMC announcement this week overwhelmed all other news for traders. And the market did not like the message they inferred from the rate hike. The Standard and Poors 500 index (SPX) closed today at 3693, down 65 points or -1.7%. SPX opened the week at 3850, so today’s close represented a decline of 4.1% for the week. This month is setting up to be one of the weaker Septembers in market history. Trading volume was modestly higher than the 50-day moving average (dma) all week, but we did not witness a significant spike in volume as we did last Friday.
VIX, the volatility index for the S&P 500 options, opened the week at 27.7% and spiked to 32.3% today before settling into the close at 29.9%. VIX has been steadily rising since early September, probably in anticipation of the FOMC announcement.
I track the Russell 2000 index with the IWM ETF. IWM traded lower over the last three days, closing today at 167.31, down 4.08 or -2.4%. IWM opened the week at 177.01 for a weekly decline of 5.5%. IWM’s June low was 163 and today’s low was 165 before it recovered into the close.
The NASDAQ Composite index matched the S&P 500’s decline today, closing at 10,868 , down 199 points or 1.8% on the day and down 4.2% for the week. NASDAQ’s trading volume was below the 50 dma all week. NASDAQ took the largest declines into the June low but did not stand out this week. Perhaps the selling pressure for the formerly hot NASDAQ stocks has slowed.
The market moving event this week was the FOMC meeting with the discount rate increasing 75 basis points to result in a range of 3.00% to 3.25%. The consensus expectation of market analysts was for a 75 basis point rate hike. That appeared to be priced into the market’s prices and the market actually rose for a few minutes after the announcment. Then it settled modestly lower into the close Wednesday as Powell’s remarks at the press conference appeared rather hawkish.
As market analysts reviewed the members’ dot map of rate predictions, the overnight mood shifted significantly with gap openings lower yesterday and again today. FOMC members are projecting a discount rate of 4.4% by year end, peaking at 4.6% in 2023 and declining somewhat in 2024. The market interpreted this as the beginning of the “hard landing” scenario where higher interest rates push the economy into a serious recession.
I was considering taking this opportunity to sell far OTM SPX put spreads for my Flying With The Condor™ trading service. But the market continued to sink until a slight recovery about an hour before the close. Today’s market did appear to bounce off the June lows, and that was very positive. I decided that staying in cash and watching the market open on Monday would be much more prudent.
My advice is to stay on the sidelines until we witness a clear bounce from the June lows. Don’t jump too soon; markets often test previous lows at least once before beginning a recovery.
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One of the first principles taught to beginning stock traders for reading charts is “Higher highs and higher lows form an uptrend and lower highs and lower lows form a down trend”. Ever since the fed announcement last week, traders watched the chart to see if the June lows would be broken. Until about 1:30 pm ET today, it appeared that the Standard and Poors 500 index (SPX) was finding support at the June lows around 3640, but then it broke down and steadily declined into the close. SPX closed at 3586, down 55 points or -1.5% on the day and down 2.6% this week. SPX declined 8.9% in September. As one might expect on a dramatic break lower, trading volume spiked to 3.5 billion shares, well above the 50-day moving average (dma) at 2.3 billion shares.
VIX, the volatility index for the S&P 500 options, opened and closed today at 31.6%. The range was unusually large with a low at 29.4% and a high at 33.3%. This suggests that the decline late this afternoon didn’t panic the traders. Perhaps the large institutional traders were already adequately hedged.
I track the Russell 2000 index with the IWM ETF. IWM’s trading pattern differed from the S&P 500 in that it essentially traded sideways all week (down 0.3%) and never reached its June low. IWM closed today at 164.92, down 1.21 or -0.7%. The Russell 2000 normally leads the market lower in a correction, so today’s trading was a bit of a surprise.
The NASDAQ Composite index followed the S&P 500’s decline this afternoon but NASDAQ didn’t break its June low and didn’t spike its trading volume. NASDAQ closed at 10,576, down 162 points or 1.5% on the day and down 2.4% for the week. NASDAQ’s trading volume was at or below the 50 dma all week. The selling pressure in the NASDAQ stocks was much stronger earlier this year but it appears the sentiment has shifted.
The market gave every indication this week that it was finding support at the June lows. At first blush, this afternoon’s late decline appeared to break that support level, at least on the S&P 500 stocks. But SPX’s implied volatility was unchanged on the day – interesting. I would have expected it to spike higher with the selling pressure this afternoon. Both NASDAQ and the Russell 2000 have not yet broken their June lows.
I am more inclined to believe today’s trading was a test of the previous lows rather than a break that will lead the market significantly lower. But I am not going to test that hypothesis with my money or my clients’ money.
My recommendation remains the same. Stay on the sidelines until we witness a clear bounce from the June lows. Be patient. It is better to miss a bit of the turn higher rather than find that you jumped back in too soon.
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This was a seriously negative week for the markets. The Standard and Poors 500 index (SPX) closed at 3873, down 28 points or -0.7%. SPX opened the week at 4084, so this close represented a decline of 5.2% for the week. Trading volume spiked higher Friday to 4.4 billion shares, double the 50-day moving average (dma) at 2.2 billion shares. The last time trading volume spiked this high was during the lows in mid-June. Is that level around 3640 the next stop?
VIX, the volatility index for the S&P 500 options, opened the week at 23.6% and closed yesterday at 26.3%. Given Friday’s market decline, I am a bit surprised VIX has not moved higher. Perhaps the large institutional players are already hedged.
The NASDAQ Composite index posted the largest decline of all of the major stock market indices this week, closing Friday at 11,448 , down 104 points or 0.9% on the day and down 6.0% for the week. NASDAQ’s trading volume also spiked Friday, hitting 7.5 billion shares as compared to the 50 dma at 4.7 billion shares.
The decline started by Powell’s Jackson Hole speech on 8/26 continued this week. The S&P 500 broke support at 3925; the next weak support level is at the May low of 3812. Then we are looking at another weak support level at 3727 before we test the June lows around 3640.
The next FOMC meeting is scheduled for next week with the rate announcement on 9/21. The consensus expectation of market analysts is for a third 75 basis point rate hike. How will the market respond? Is the expected rate hike priced into the current market prices or will the market continue to track downward toward the June lows?
Friday’s market decline of the order of five to six percent was accompanied by a trading volume spike. All of the price volatility up and down over the past couple of months occurred at average or below average trading volume. I doubt that Friday was the classic capitulation volume surge marking a market low, simply because the major market event everyone is talking about remains three days in the future.
My counsel is unchanged from last week. Stay on the sidelines until after the September FOMC announcement. Even then, don’t jump too soon; allow the market to digest the news. We could break that June low…
