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This wasn’t a banner week in the market and the losses accelerated Friday. The Standard and Poors index (SPX) closed at 4460, down 35 points or 0.8%. The holiday shortened week posted a dismal 1.7% decline. Trading volume rose slightly, but never touched the 50-day moving average (dma) this week.
VIX, the volatility index for the S&P 500 options, opened Tuesday at 17% and closed Friday at 21%. The pattern of a mini-correction roughly every month continues.
I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined once again this week, closing Friday at 221.62 for a 1% decline on Friday and a 2.7% decline for the week.
The NASDAQ Composite index set another high on Tuesday but declined the rest of the week, closing Friday at 15115, down 0.9% on the day and down 1.7% for the week. But NASDAQ’s trading volume surprised me, finally breaking its 50 dma on Friday (first above average break since July 20th).
I have previously noted the eight
mini-corrections of 2-6% we have experienced this year. I guess we were overdue. Friday’s close on the S&P 500 marks a pullback of 1.7%. Previous downturns have ranged from 2% to 6%, only last a few days and then bounce back in a classic V pattern. Will traders come in to buy the dip one more time?
Fears of runaway inflation continue to haunt the market. However, Friday’s strong pullback appeared to be triggered by a court ruling that went against Apple and, by extension, may hurt Google as well. Will that be forgotten on Monday? This week just reinforces my nervous attitude toward the market this year. These mini-corrections of 2-3% plague conservative traders more than most because those stop losses are tighter. It is the basic nature of conservative trades – small potential returns with tight break-evens. I didn’t close as many positions in light of market weakness this week. I may regret that next week.
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Powell’s speech this morning calmed traders and sent the markets soaring. The Standard and Poors index (SPX) closed at 4509, up 39 points or 0.9%. Today’s run set another all-time high and completed the week’s track record with a gain of +1.3%. Trading volume never touched the 50-day moving average (dma) at any time this week.
VIX, the volatility index for the S&P 500 options, spiked into the mid-twenties last week as the market traded lower, but proceeded to decline this week and closed today at 16.4%. However, it would be a mistake to put your portfolio on autopilot and take a nap. This remains a nervous and twitchy market.
I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined severely in mid-July. IWM almost matched those July lows on August 19th while breaking down through the 200 dma. IWM has traded below the 50 dma since July 13th and flirted with that key moving average on Wednesday. IWM decisively broke out above the 50 dma in today’s strong market, closing up 2.8% at 226.41.
The NASDAQ Composite index broke out above its 50 dma last Friday and continued a strong run this week, closing today at 15,130, up 184 points or 1.2% for the day and up 3.8% for the week. NASDAQ’s trading volume has consistently run under the 50 dma since July 20th.
The overall market trends of the S&P 500 and NASDAQ have tracked higher this year, but it has been a rough ride. In eight months we have experienced eight mini-corrections of 2-6%. In each case the downturn only lasts a few days and bounces back in a classic V pattern. Many traders are betting on a strong economic recovery, but the fears of runaway inflation are weighing on the market. Powell’s speech at Jackson Hole soothed the market’s fears and caused a strong bullish run today. But it is anyone’s guess how long that lasts before we see another twitch. Historically, strong bull markets require the leadership of the small to mid-cap stocks, typical of the Russell 2000 index. I am encouraged by Russell's strong performance today and this week. Russell has an uphill climb to get back in sync with its big brothers, but this is the best it has looked all year. Maybe we are turning the corner?
I continue to trade cautiously. I started the week 70% in cash and ended the week at 62% cash. I was a little more aggressive this week, but I have too many scars from these
mini-corrections tripping my stops and then leaving me behind.
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The Standard and Poors index (SPX) made three new all-time highs this week, closing Friday at 4468, up 7 points on the day and up 0.7% for the week. The trading volume of the S&P companies ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened the week at 17.1% and closed Friday at 15.5%. Historically, this doesn’t correspond to an “all clear” signal but it has not moved much lower this year.
I follow the prices of the IWM ETF to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined severely in mid-July. IWM closed Friday at 221.13, down 0.9% on the day and down 0.8% on the week. IWM has yet to recover its 50 dma at 224.54.
The NASDAQ Composite index traded sideways this week and closed Friday at 14823, up seven points or +0.04% on the day, but down 0.2% for the week. It gave some of that back on Friday, closing at 14836, down 0.4% on the day but remained up 0.5% for the week. NASDAQ’s trading volume traded almost perfectly sideways and ran below its 50 dma all week.
The S&P 500 and NASDAQ continue to trade higher this year, but with frequent and sudden pullbacks. As a consequence, it has been a frustrating market to trade. The bulls are banking on the economy recovering strongly from the economic lockdowns and the fear of inflation has been the principal concern for traders. The bearish behavior of the Russell 2000 is my principal concern with this market. I continue to trade cautiously but I am venturing out with a few more positions.
I started the week 74% in cash and ended the week at 58%.
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The Standard and Poors index (SPX) appeared to bounce off support around 4389 on Thursday and closed Friday at 4442, up 36 points or 0.8%. SPX opened Monday at 4462, so it recovered much of the week’s losses and ended the week down 0.4%. Trading volume spiked above the 50-day moving average (dma) on Thursday but remained below average the rest of the week.
VIX, the volatility index for the S&P 500 options, opened the week at 17.1%, spiked up to an intraday high of 24.7% on Thursday and closed Friday at 18.6%. It appears the mini-correction is over, but I will be watching very carefully on Monday.
I plot the prices of the IWM ETF to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined severely in mid-July. IWM almost matched those July lows on Thursday while breaking down through the 200 dma. IWM bounced upward strongly on Friday, closing at 215.52, up 3.58 points or +1.7%. Even with Friday’s strong close, IWM lost 1.9% this past week. The Russell 2000 would have to gain 3.5% to regain its 50 dma.
The NASDAQ Composite index broke down through its 50 dma on Wednesday and didn’t recover that benchmark until Friday when it closed up 173 points at 14715. This resulted in a decline of 0.4% for the week. NASDAQ’s trading volume has consistently run under the 50 dma since July 20th.
The overall market trends of the S&P 500 and NASDAQ have tracked higher this year, but it has been a rough ride with frequent and sudden pullbacks. We are caught between bullish expectations for the economy’s recovery and the fear of inflation. The Russell 2000 chart is downright ugly. It is difficult to see the overall market continuing higher without the leadership of the small to mid-cap stocks. I continue to trade cautiously. I started the week 58% in cash and ended the week at 70% cash. This shift is primarily the result of my closing out this month’s Conservative Income positions. I was unwilling to roll them out to next week. I preferred the safety of cash for the weekend.
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The Standard and Poors index (SPX) made two new all-time highs this week, closing Friday at 4437, up 7 points on the day and up 0.7% for the week. The trading volume of the S&P companies ran above and below the 50-day moving average (dma) this week but fell below the 50 dma as the index made new
all-time closing highs on Thursday and Friday.
VIX, the volatility index for the S&P 500 options, declined steadily this week, hitting an intraday high on Monday at 19.9% and closing Friday at 16.2%. This isn’t an “all clear” signal but it is a big improvement over the past couple of weeks.
I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM magnified the moves of the large blue chips this week, declining the first three days and then spurting higher Thursday and Friday. However, IWM could not break above its 50 dma on Friday at 224.93 and pulled back to close at 223.38.
The NASDAQ Composite index traded steadily higher all week and set a new all-time high on Thursday at 14895. But it gave some of that back on Friday, closing down at 14836, down 0.4% on the day but remained up 0.5% for the week. NASDAQ’s trading volume continued run below its 50 dma all week.
This year has been frustrating for traders, spurting higher and then falling sharply, only to recover the previous highs in short order. This week continued the move higher. The bulls are banking on the economy recovering strongly from the economic lockdowns, and the data appear to be supporting that thesis. The pullbacks are the effects of the lingering doubts. This is unknown territory. We have never experienced a lockdown anything like this since World War II.
I started the week 74% in cash and ended the week at 75%. I had hip replacement surgery on Monday, so I didn’t look to increasing my positions this week. They tell me I am doing well, wandering around the house, and even walking around the block yesterday with the assistance of a cane. I focused on trade management of open trades this week. We closed a nice one with Apple on Thursday with a 60% gain and closed profitable earnings trades on TSLA, MSFT and GOOGL.
