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The Standard and Poors 500 index (SPX) came to life in today’s shortened trading session, closing up 40 points, or +1.1%, at 3825. But that wasn’t enough to save the week from a 1.2% loss. Trading volume remained below the 50 day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, was choppy but largely unchanged this week. VIX opened today at 29.5% and closed at 26.7%. It seems like we have been trapped in this “no man’s land” around 25% most of this year. Traders are nervous but not panicked.
I track the Russell 2000 index with the IWM ETF. IWM traded lower all week but recovered somewhat today, putting on over two points or +1.2%. But that could not save the week from a 2.4% loss.
The NASDAQ Composite index attempted a recovery today, just as we observed for the other broad market indices, but the gains were disappointing. NASDAQ closed today at 11,128, up 99 points or 0.9%. However, NASDAQ closed the week at a loss of 4.6%. Trading volume ran slightly above the 50 dma at 5.3 billion this week but dropped off today to close at 4.8 billion shares.
I have been observing the market weakness this year as a classic correction in an ongoing bullish market. Even after today’s attempted recovery, the 2022 market has incurred significant damage:
· The S&P 500 index: -20%
· The NASDAQ Composite: -29%
· The Russell 2000 index: -23%
I am shifting my opinion of this market to a bearish downtrend. Instead of looking for the bullish recovery, I am on defense and will be actively looking for bearish trades to profit from the downward trend.
I am currently almost entirely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I believe that style of trading will continue to do well in this environment so I am shifting investment cash to those trades. The upcoming earnings season will offer trading opportunities both before and after the announcements. I will be looking for more conservative income trades, e.g., deep ITM long term covered calls. This may be a good time for a vacation, or at least a pause in trading.
Enjoy this holiday weekend. Reflect on the exceptional freedom we enjoy in this country. Surrendering our freedom so the government can take care of us and tell us how to live is a poor bargain and will not lead to happiness.
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The Standard and Poors 500 index (SPX) began to show signs of life on June 17th and continued that recovery through today with a increase of 116 points to close at 3912, up 3.1% for the day and 5.3% for the week. Trading volume remained close to or below the 50 day moving average (dma) until spiking much higher today, reaffirming today’s strong gap opening and large recovery push.
VIX, the volatility index for the S&P 500 options, opened this week at 31% and steadily declined to close today at 27%. However, this level of volatility is far from benign. VIX opened 2022 just under 18% and even that level was somewhat elevated compared to the VIX prior to the 35% crash in March 2020.
The NASDAQ Composite index followed the lead of the other broad market indices today, gapping open higher and continuing the bullish run, closing up 3.3% at 11,608 and up 8.5% for the week. This might have qualified for a “follow through day" to confirm the resumption of an uptrend in the IBD methodology, but the trading volume was disappointing at 4.4 billion shares, well short of the 50 dma at 5.1 billion.
The 2022 market correction now stands at significant levels:
· The S&P 500 index: -24%
· The NASDAQ Composite: -32%
· The Russell 2000 index: -28%
The question on everyone’s mind is whether this week’s trading marks the bottom of this correction. That assumes we remain in a bullish market. Unfortunately, there is a less pleasant answer. We could be transitioning to a recession with the accompanying bear market and we are simply observing the classic lower highs and lower lows of the bearish trend.
I was certainly of the bullish persuasion in late March as the market appeared to be recovering to return to the highs earlier in the year. Instead, the S&P 500 collapsed to new lows in early May, and then lower again in late May, and then took another step lower in mid-June.
I am currently almost entirely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I opened two earnings trades on FDX for the trading group subscribers yesterday and closed them for modest gains today. I remain unconvinced that the bull market has resumed. It is safer on the sidelines.
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Friday’s market reminded me of the classic Monopoly game card. The Standard and Poors 500 index (SPX) collapsed Friday after the latest CPI report, losing 117 points to close at 3901, down 2.9% in one day. This culminated a disastrous week for the S&P 500 with a 5.7% loss. Support levels from the May lows are 3875 and 3801. However, trading volume remained below average all week, only touching the 50-day moving average (dma) on Friday.
VIX, the volatility index for the S&P 500 options, spiked as high as 30% on Friday and then declined to close at 28%. VIX opened the week at 25% and declined to 23% by Wednesday, but increased Thursday and Friday. The increase on Friday seemed less than I would have expected for a large gap opening lower that continued even lower with no intraday recovery.
I track the Russell 2000 index with the IWM ETF. IWM gapped open lower on Friday and lost nearly five points or 2.7%. IWM opened the week at 188.79 and closed Friday at 178.59 for a decline of 5.4%.
The NASDAQ Composite index gapped open lower Friday and closed at 11,340, down 414 points or 3.5% and down seven percent for the week. Trading volume was modest all week and only slightly above the 50 dma, even during Friday’s market collapse.
The 2022 market has been declining steadily for multiple reasons:
· Record levels of inflation
· Sharply rising energy prices
· Rising interest rates
· A negative Q1 GDP estimate
Overall market trading was largely constrained to a sideways trading pattern for the last couple of weeks but that dramatically changed Friday after another record setting CPI report.
Stagflation is the term for a period of high inflation coupled with a slow growing or even a recessionary economy. The Fed’s cure for inflation is largely constrained to raising interest rates to slow the economy and consequently slow wage and price increases. They raised rates a quarter point at their last meeting and will likely raise rates by a half point on Wednesday.
An additional concern is whether the current market is overpriced. The broad market indices are all substantially lower at this point. The declines in 2022 follow:
· The S&P 500 index: -19%
· The NASDAQ Composite: -28%
· The Russell 2000 index: -20%
I consider removing 20% or more from the market indices probably trims prices to a more reasonable level. On the other hand, the price increases of consumer goods and energy are setting all-time records and we have not yet seen any softening of those prices. Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling, representing a large number of stockholders throwing in the towel. We have not seen that volume spike as yet. It could get worse before it gets better.
Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.
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The most recent plunge for the Standard and Poors 500 index (SPX) began on June 9th and hit an intraday low Thursday at 3640, down 24% for the year. Friday’s trading was somewhat more positive with a modest gain of eight points or 0.2%. The S&P 500 stocks ended the week with a 4.2% loss. Trading volume spiked Friday on quadruple witching.
VIX, the volatility index for the S&P 500 options, began a spike higher on June 9th at 24%, peaking on June 13th at 35%. VIX closed Friday at 31%, with volatile readings this week, but ending unchanged from Monday’s open.
I track the Russell 2000 index with the IWM ETF. IWM was modestly higher on Friday at 165.18, gaining 1.3 points or +0.8%. IWM opened the week at 173.63 for a decline of 4.9%.
The NASDAQ Composite index recovered slightly on Friday, closing at 10,798, up 152 points or 1.4% but down 1.7% for the week. Trading volume spiked Friday on quadruple witching.
Summarizing the 2022 market to date:
· The S&P 500 index: -24%
· The NASDAQ Composite: -32%
· The Russell 2000 index: -28%
It goes without saying that the major driving forces for this correction are:
· Record levels of inflation
· Record oil prices
· Rising interest rates
· Fear of a recession
The Federal Open Markets Committee (FOMC, or the Fed) continued their raising of the discount rate for Federal funds, increasing it by 75 basis points on Wednesday. The size of that increase surprised the market and resulted in Thursday’s sell-off. Raising interest rates is designed to slow the economy and thus slow wage and price increases. The Fed is also selling treasury bonds and other securities in their portfolio to decrease the money supply, an additional upward pressure on interest rates.
Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling that represents a large number of stockholders throwing in the towel. Thursday’s low on above average trading volume may have represented that capitulation low, but that certainly wasn’t confirmed by the modest rise in the markets Friday.
I am almost entirely in cash at this point, and I am not anxious to enter any new trades. I have too many scars this year from trying to jump back into the market.
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The Standard and Poors 500 index (SPX) closed Friday at 4109, down 68 points on the day or -1.6%. SPX opened the week at 4151, resulting in a loss of one percent for this shortened holiday week.
Trading volume spiked higher to open the week on Tuesday but sank far below the 50-day moving average (dma) for the rest of the week.
VIX, the volatility index for the S&P 500 options, opened Tuesday at 27% and closed Friday at 25%. This is the lowest level for VIX since the last week of April.
The NASDAQ Composite index closed at 12,013 Friday, down 304 points or
2.5% and down one percent for the week. Trading volume spiked Tuesday but declined below 50 dma for the balance of the week.
The overall market has been very volatile this year, and the overall trend has been lower. After hitting a low of 21% on May 20th, SPX strengthened somewhat over the past two weeks to cut the loss to -14%. The principal worries for the market are record levels of inflation, rising energy prices and increasing interest rates. The last GDP estimate was negative, causing concerns about stagflation to mount. Can the Feds raise rates enough to counter inflation without cratering the economy?
Overall market trading was flat this week. Are we about to tip over into an even more severe correction? Or have we stabilized at this level? That is anyone’s guess. Last week’s trading was very bullish, but we have seen many short-lived rallies this year abruptly and painfully ended. Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.
