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December was a tough month for the markets, but this year’s market appears to be trying to challenge those December lows. The Standard and Poors 500 index (SPX) closed at 4663, up 4 points, but almost flat for the week (+0.2%). You probably recall the classic hammer candlestick with its long lower candlestick shadow on Monday this week. That is a fairly reliable signal of a recovery from the downtrend. I was hopeful when SPX traded higher Tuesday, but then the classic doji candlestick posted on Wednesday, a signal of indecision and a possible turning point in either direction. The bad news came yesterday with SPX breaking its 50-day moving average (dma). Today’s increase barely made it back to yesterday’s close. SPX trading volume essentially traded sideways this week around the 50 dma.
VIX, the volatility index for the S&P 500 options, closed at 19.2% today, down a little over one point. VIX opened the week at 19.6%, so volatility is fragile and moving rapidly back and forth. Said another way, the large institutional traders are nervous.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 index has been signaling a bearish market since November 8th. IWM broke below both its 50 dma and its 200 dma in one trading session on January 5th and remains well below its 200 dma today. Bullish traders are swimming upstream.
The NASDAQ Composite index closed today at 14,894, up 87 points, but NASDAQ only managed to gain 1% for the week. NASDAQ opened this morning below its 200 dma but it climbed back above the 200 dma before the close, so at least that support level held. NASDAQ has been hit much harder than the S&P 500 this year. It appears traders are cashing in the returns on the high-flying high-tech stocks. Trading volume declined all week.
I only had two trades open in my trading group last Friday and I closed those this week. With the exception of the February condor in the Flying With The Condor™ service, I am entirely in cash. It is time for a long winter’s nap.
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This first week of the new year opened with SPX trading near all-time highs, but after the FOMC’s minutes were released on Wednesday, we gave it all up and spent the last two days threatening to break the 50-day moving average (dma). SPX closed today at 4677, down 19 points for the day, and down 101 points or over 2% for the first week of the year. The fact that SPX did not break the 50 dma was the only bright spot this week. SPX trading volume resumed its normal levels around the 50 dma after the typical lows of the holidays as nearly everyone takes some time off.
VIX, the volatility index for the S&P 500 options, closed at 18.8% today, down almost a single point. VIX peaked during Wednesday’s downturn at 20.2%. However, we have seen much worse levels as the market pulled back over the last few weeks. In early December, we witnessed spikes over 35%.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 index has been signaling a bearish market for several weeks. On November 26th, IWM broke below both its 50 dma and its 200 dma in one trading session. And it remains well below its 200 dma today.
The NASDAQ Composite index closed today at 14,936, down 145 points or 1%. But it gets worse. NASDAQ opened the week at 15,733, losing 5.1% for the first week of trading in the new year. Trading volume generally ran below the 50 dma this week.
Santa brought us coal for our stockings this year, and the new year just piled on. All of the positions in the Conservative Income trading service are closed and I only have two trades open in my trading group. It is a weak start to the new year.
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The Standard and Poors index (SPX) set the low of this recent pullback last Friday with an intraday low of 4495, but it was encouraging to see the S&P 500 recover almost half of the day’s losses before the close. SPX opened at the 50 day moving average (dma) Monday morning and traded higher. Tuesday brought us a huge present with a large gap opening higher and the index continued to trade higher into today’s close at 4712, up one percent on the day and up nearly 4% for the week. SPX opened at 4712 on 11/22 and declined from there to initiate this latest pullback. Today’s close was precisely back to that opening price of 11/22. Trading volume in the S&P 500 companies steadily declined all week, falling below the 50 dma on Wednesday and declining to 2.1 billion shares today.
VIX, the volatility index for the S&P 500 options, closed at 18.7% today, after opening at 29% on Monday. It appears that we have recovered from this latest pull back, although this year has trained us to hesitate before declaring it safe to go outside again. It appears that the storm is over, but…
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 is the fly in the ointment of the otherwise positive S&P 500 market assessment. IWM closed today at 219.91, down 0.61 points or 0.3%. IWM opened the week at 219.91 and rose 1.6% for the week. IWM recovered its 200 dma on Tuesday but broke back below it on Thursday and traded even lower today.
The NASDAQ Composite index closed today at 15,631, up 113 points or 0.7%. NASDAQ opened the week at 15,118, setting up a gain of 3.4 percent for the week. Trading volume declined steadily this week, moving below the 50 dma on Wednesday and remained below average for the balance of the week. NASDAQ’s trading volume declined 35% this week.
This week of trading at least served to give us hope that the latest pull back is behind us, but it is impossible to be sure. It is always challenging to predict market direction, but this year has set records for capriciousness. I looked at the SPX price chart for the year and counted a minimum of nine of these
mini-corrections this year. None of them were severe, but they have been sufficient to hit many of my stops and sent me into red ink. All of my trading services are posting positive returns year-to-date, but the results aren’t what I would like. These frequent pull backs take their toll.
I admit that I am of two minds about this market. On the one hand, I feel that the media and the politicians have scared everyone to death. One of the results is that the market pulls back on any negative covid news, whether it makes sense or not. On the other hand, I can’t believe the market is continuing to set new highs this year with an extremely fragile economy, high inflation, and staggering national debt.
If we use the S&P 500 index as our measure of market health, it has solidly recovered its 50 dma and is only a couple of points off the highs set earlier in November. That chart leaves me feeling that the storm is over. However, when I turn to NASDAQ, the picture isn’t nearly so positive. NASDAQ has recovered its 50 dma but it remains about one and a half percent below the highs set earlier in November. And my countenance really drops when I look at the Russell 2000 index. It remains well below its 200 dma and has not even come close to recovering its 50 dma.
Investors Business Daily (IBD) continues with its Market In Correction assessment. The FOMC will meet this coming week. Any talk of raising interest rates will spook traders. Perhaps the conclusion is simply that the market isn’t likely to trade much higher from here; the bulls will do well just to hold the market roughly in place. But fear mongering and dysfunctional politics will continue to contribute to a choppy sideways market with frequent pullbacks leading to transient recoveries. I don’t think calmer waters are in the forecast. It will remain a challenging market to trade.
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The Standard and Poors index (SPX) looked good last week, closing near previous all-time highs. This week opened with traders worrying about the upcoming FOMC meeting and what they would say about inflation. After the announcement and press conference Wednesday, SPX spiked back to match last Friday’s closing high. Apparently, traders liked what they heard. But they must have changed their minds upon further reflection. Thursday’s trading gave back much of Wednesday’s gains. Then the market gapped open lower on Friday and traded down to the 50-day moving average (dma) before bouncing modestly to close at $4621, down 1% on Friday and down nearly two percent for the week. The fact that SPX did not break the 50 dma was the only bright spot this week.
Once each quarter the stock index futures, stock index options, stock options and single stock futures all expire on the same Friday. We call this quadruple witching and the fourth quarter event occurred Friday. Consequently, SPX trading volume spiked to the second highest level this year, 4.4 billion shares, with the 50 dma at 2.3 billion shares.
VIX, the volatility index for the S&P 500 options, closed at 21.6% today, after opening at 19.3% on Monday. Last week, I would have tentatively suggested this most recent pull back was behind us, but Friday’s decline in the market and the accompanying rise in volatility suggest otherwise. If I put on my rose-colored glasses, VIX has essentially tracked sideways, but that is weak even for an optimist.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 index has been the canary in the coal mine for these recent pull backs, declining quite consistently over the past six weeks. IWM closed yesterday at 215.14, up 1.96 or +0.9%. Even with yesterday’s move higher, IWM finished the week down 1.5%.
The NASDAQ Composite index closed Friday at 15,170 , down 11 points, essentially unchanged. NASDAQ opened the week at 15,621, setting up a loss of 2.9 percent for the week. Trading volume ran close to the 50 dma this week, before spiking for quadruple witching on Friday with 8.0 billion shares traded; the 50 dma is 5.1 billion shares.
Last week in the markets gave me some hope that the pullback was behind us, and we could begin to see the commonly occurring year end rally, often called the Santa Claus rally. This week certainly put a dent in that expectation.
Wednesday’s strong market recovery after the Fed meeting was sufficient to push Investors Business Daily (IBD) to move from Market In Correction to Confirmed Uptrend. I wonder if they have misgivings about that move. On Friday, they moved their market assessment to Uptrend Under Pressure. I’m not the only person being whipsawed by this market.
One of the fundamental measures of a stock or market index’s health is its position relative to its 50 dma. The S&P 500 index is 0.4% above its 50 dma. That is barely above the 50 dma, but SPX is alone up there. The NASDAQ Composite is 1.8% below its 50 dma and the Russell 2000 index is 5.4% below its 50 dma! I normally don’t follow the Dow Jones Industrials index (too few stocks to analyze the total market), but I checked it out for this comparison – it stands 0.3% below its 50 dma. The bottom line isn’t attractive at all. I tend to be a reasonably positive person, but it is hard to be optimistic here.
I closed all of the positions in the Conservative Income trading service yesterday and closed the last newsletter trade on December 7th. I only have three trades open in my trading group; one is solidly profitable; one is borderline, and one is likely to be closed Monday unless the Santa Claus rally shows up. In spite of these last several weeks, all of my trading services are finishing the year in the profit column. I think I will relax for the last two weeks of 2021 and wait for calmer weather.
Merry Christmas and Happy New Year!
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The Standard and Poors index (SPX) encouraged us yesterday with a strong recovery, but it was just a head fake. SPX closed at 4538 today, down 39 points or 0.9%. The S&P 500 index lost two percent this week and has now lost nearly 4% since its opening at 4712 on November 22nd. Trading volume was above the 50 day moving average (dma) all week, which hasn’t happened very often this year. Over the past several months, SPX trading volume has tracked at or below the 50 dma. This increase in volume underscores this bearish move in the market.
VIX, the volatility index for the S&P 500 options, opened trading this morning at 27% and spiked up to 35% before settling down somewhat, closing at 30.5% today.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM closed today at 214.71, down 4.05 or 2.1%. IWM opened the week at 226.22, so the week’s loss was over five percent!
The NASDAQ Composite index closed today at 15,085, down 296 points or 1.9%. NASDAQ opened the week at 15,719, setting up a loss of a little over four percent for the week. Trading volume was mixed this week, below average on Monday and Friday, but above the 50 dma for the middle of the week.
Last week’s strong decline on Friday of Thanksgiving week surprised me, but Monday’s positive opening seemed to suggest Friday’s sell off was excessive. Then the market sold off even further on Tuesday and Wednesday. Just like an abusive husband, the market turned nice on Thursday and assured us everything was OK. Today’s market was mixture of the extremes, with the S&P 500 opening higher and then plunging to an intraday low of 4495, before recovering 43 points to close at 4538. I may be desperately searching for a positive signal, but that late recovery today was indeed a hopeful sign. And that bounce was duplicated in NASDAQ and the Russell 2000.
But I cannot ignore that the S&P 500 index is now down 4% from its most recent high. Similarly, NASDAQ is down 6% and the Russell 200 is down 12%. This is becoming serious. Absent a sustained bounce next week, it may be time to close many of our trades.
In closing, I ask you to consider a simple question. What exactly needs to happen to allow the current restrictions on our freedoms to end? Covid 19 is no different than any other coronavirus. It will continue to mutate. The vaccine has not proven to be the savior we were promised, and the target is moving. When will it end?
