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Fridays are becoming the most exciting days in the market. The Standard and Poors 500 index (SPX) opened today at 3927 and traded higher for about 30 minutes before starting a steady decline to a low of 3810 around 1:30 PM ET. But then the bulls took over and drove the market into the close at 3901, essentially a flat day from Thursday’s close. What a ride!
The end result for the week was a 2.8% decline in SPX. The intraday low today updates the correction to 21% since the January 4th open. Trading volume rose steadily all week and moved above the 50-day moving average (dma) for the last three days of the week.
VIX, the volatility index for the S&P 500 options, opened this week at 30%. I found it interesting that Wednesday’s rout of the market only spiked VIX to 31%. Thursday and Friday both saw intraday spikes up to 33%, but VIX settled down to 29% today. This certainly isn’t a low level of volatility, but it is lower than one would have expected for the significant decline we witnessed Wednesday. The large institutional players are not as spooked by this market as I am.
The NASDAQ Composite index closed at 11,355 today, down 34 points or
0.3% today but down 3.2% for the week. Note how the intraday low was very close to the low last Thursday. Is NASDAQ finding support? Trading volume only reached the 50 dma today.
The overall market has been very volatile this year, but the overall trend has been lower. The Ukraine crisis, record levels of inflation, rising energy prices and increasing federal debt are some of the worries keeping traders up at night. Soon after we began to see inflation getting out of hand, a new worry appeared: the prospect of the feds raising interest rates to slow the economy and counter inflation, but perhaps risking a recession in the process.
Traders find themselves coping with two somewhat opposed issues: run away inflation and rising interest rates. We don’t want inflation to get out of control, but we also fear that the FOMC may raise rates too far and/or too fast and the economy will be effectively shut down.
One interesting recent price pattern is common to S&P 500, NASDAQ and the Russell 2000 indices this week. All of these indices rallied off intraday lows on May 12th. Again, all of these indices posted intraday lows today that were close to the intraday lows of May 12th. That may be a sign of the market stabilizing and finding support. The S&P 500 is off 21%; the NASDAQ Composite is off 30%; the Russell 2000 is off 25%. Do the current prices represent good value? One could argue that today’s recovery from intraday lows suggests that traders are starting to bargain hunt. But we have seen that before. Stay cautious. The second mouse gets the cheese. Let the market prices show us the way.
We don’t have solid answers to these questions today. Until we have those answers, we should remain largely in cash. Trade small if you trade at all.
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The Standard and Poors 500 index (SPX) closed today at 4024, up 94 points or 2.4% in a single day. But SPX had declined this week by 3.7% through Thursday’s close, so even with today’s strong recovery, SPX was down 1.4% for the week. The CPI and PPI announcements this week were the principal reasons for this week’s market weakness. Today’s open on SPX gapped open much higher than Thursday’s close and today’s open was also today’s low; both are very bullish signs.
VIX, the volatility index for the S&P 500 options, opened this week at 32% and then spiked to over 35%, before declining steadily and then gapped lower today to close at 29%. But this remains a high level of volatility.
The NASDAQ Composite index closed at 11,805 today, up 434 points or
3.8% in a single trading session. However, it couldn’t make up for the week’s earlier losses, so NASDAQ closed down one percent for the week. Trading volume ran above the 50 dma all week. Thursday’s intraday low set a 30% correction for NASDAQ since the January highs.
Last week I was complaining about how commonly the market has sold off on Fridays this year, but I thought the market was finally finding support. Well, I was dead wrong as the market took another step lower this week. The difference this week was the strong bullish recovery today on all of the broad market indices. The S&P 500, NASDAQ and the Russell 2000 indices all gapped open at this morning’s open and continued to trade higher into the close.
The inflation data earlier this week appeared to push the market to new lows, but it may be that analysts started to realize that the rate of inflation may have peaked. The Consumer Price Index peaked at a year over year increase of 8.5% last month; CPI increased 8.3% this month on a year over year basis. Similarly, on year over year basis, PPI increased 11.5% last month , but declined to 11% this month.
That is the best explanation I have for today’s strong market. But next week may bring a new reason to trade lower. I keep thinking the market has turned the corner and I dip my toe in the water. As a result, I have lost several toes. This market has humbled me and I remain largely in cash.
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The Standard and Poors 500 index (SPX) closed today at 4132, down 156 points or 3.6%. SPX closed the week down 2.9%. If I put on my rose-colored glasses, I would point to Monday and Thursday’s moderately bullish trading sessions. The pessimist (or realist) might note that the market closed at or very near the lows for the day both on Tuesday and today. Why is that significant? When the market trades down strongly, buyers often come into the market to buy what they consider bargains. When that doesn’t happen, it is a dire warning. Adding to the negativity was increasing trading volume. SPX’s trading volume was above the 50-day moving average (dma) every day this week. Increased volume reinforces the observed trend, in this case, a bearish trend.
VIX, the volatility index for the S&P 500 options, opened Monday at 30% and closed today at 34%. These levels of volatility aren’t quite back to those of early March, but they are close. I track the Russell 2000 index with the IWM ETF. IWM closed today at 184.95, down 2.9%. IWM opened the week at 190.99, resulting in a loss of 3.2% for the week. IWM is trading at levels not seen since December 2020. IWM is down 22% this year.
The NASDAQ Composite index closed at 12,335 today, down 537 points or
4.2%, and down 3.2% for the week. Trading volume ran below the 50 dma all week. Today’s close represents a 22% correction since the January highs for NASDAQ.
My rose-colored glasses are ruined. I was stomping on them today. It is difficult or impossible to put a positive spin on this market. The S&P companies have now hit corrections of 14% three times this year. NASDAQ and the Russell 2000 are now down 22%. Unfortunately, I don’t see any light in this tunnel. Inflation is setting records. The Fed is reducing the money supply and raising interest rates to fight inflation. Powell appears to be hinting at a half percent rate increase at the meeting next week. We just set our first negative GDP number for the first quarter. Economists label the economy as in a depression after two successive negative GDP declines.
I am largely in cash now, and plan to stay there or may even close more trades. I may be 100% in cash by the Fed meeting. The only exceptions are my index condor trades. They are doing well. My Flying With The Condor™ service is up 16% through April and the May and June positions both remain in the black. But even those positions may be adjusted next week.
I am going to have to see some solid market growth before venturing out with any new trades.
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The Standard and Poors 500 index (SPX) closed today at 4123, down 24 points or 0.6%. The initial response to the FOMC announcement on Wednesday was positive, but that wore off quickly with SPX trading off significantly the last two days. Trading volume was modestly above the 50-day moving average (dma) this week.
VIX, the volatility index for the S&P 500 options, opened Monday at 30%, traded as low as 25% on Wednesday before spiking higher and closing today at 30%. This level of volatility is not modest, even if we are becoming accustomed to it. Remain vigilant.
The NASDAQ Composite index closed at 12,145 today, down 173 points or
1.4%, and down 1.5% for the week. Trading volume ran below the 50 dma all week. Monday’s intraday low is a 23% correction since the January highs for NASDAQ.
Last Friday’s low was the low for that week, and today’s close was this week’s low. The only good news is the appearance of the broad market finding a support level this week. Of course, I may be proven wrong next week. NASDAQ closed today just below the lows set on Monday and Thursday. SPX’s low on February 24th was around 4115 and trading this week appeared to be trading right along that line.
We have suffered through a lot of bad news: record levels of inflation, FOMC moving to raise interest rates and shrink the money supply and, to top it all off, a negative GDP growth number for the first quarter.
I remain largely in cash, although I did venture out with a couple of trades late in today’s trading session. Those trades were a result of my observations that the market appeared to be finding support this week.
The trades I entered today are just my “toe in the water”. My posture remains very cautious, largely in cash with close stops on the few positions in play.
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The Standard and Poors 500 index (SPX) closed today at 4488, down 12 points or 0.3%. SPX closed the week down 1.3%. The only good news that trading appears to have stabilized over the past three trading sessions. Resistance from early February has proven formidable. Trading volume ran below the 50-day moving average (dma) again this week – no conviction.
VIX, the volatility index for the S&P 500 options, opened Monday at 20.8% and closed today at 21.2%. Declining VIX over the past two days underscores the sideways nature of recent trading. The large players aren’t concerned about a large decline.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 197.87, down 0.3%. IWM opened the week at 207.87, resulting in a loss of 2.4% for the week. IWM is again below both its 50 dma and its 200 dma.
The NASDAQ Composite index closed at 13,711 today, down 186 points or
-1.3%, and down a whopping 4.1% for the week. Trading volume ran below the 50 dma almost the entire week.
Last week’s market began to show the resistance set by the highs in early February but Wednesday’s gap down on the broad market indices was a large step lower.
The one redeeming factor for this week’s market is the trading of the S&P 500 right along that 200 dma. At least the bleeding has stopped – for now. NASDAQ and the Russell 2000 are leading the market lower. Defensive stock sectors such as utilities and healthcare are gaining and technology and transportation stocks are being sold. Increasing fuel costs are certainly a factor in transportation but these stocks are also sensitive to declining economic growth. Rising interest rates will be a headwind for economy and, in turn, the stock market.
My trading stance is unchanged. I am cautious about entering new trades; I take profits whenever I can rather than hold and hope for larger gains; I close the losers quickly. So far it doesn’t appear the markets are declining farther, but I remain cautious.
