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The Standard and Poors index (SPX) gapped open and headed higher this morning, closing the day's trading at 4230, up 37 points or 0.9% for the day. SPX opened Tuesday morning at 4217, so the index barely made it back to its starting point, up 0.3% for the week. It shows the volatility of this market when we see a gap opening lower on Wednesday and then a gap opening higher just two days later. Trading volume remained under the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, declined strongly today, closing at 16.4%. This was the lowest close for VIX since April 16th. Will it hold or will traders find something new to worry about next week?
The IWM ETF, based upon the Russell 2000 index, rose only modestly today, closing at 227.40, up 0.98 or 0.4%. IWM opened the week at 227.46, so this index was essentially unchanged for the week. That observation takes some of the optimism out of today’s strong bullish move on the blue-chip stocks. If the large institutional firms were truly shifting to “risk on”, we should see these high beta stocks picking up steam.
The NASDAQ Composite index closed today at 13814, up 200 points or 1.5%. However, NASDAQ gapped open lower on Wednesday and then gapped open higher today, leaving the index essentially flat for the week, since opening Tuesday at 13829. NASDAQ’s trading volume came to life this week, moving above the 50 dma on Wednesday and Thursday. It is interesting to see today’s strong bullish move was not even quite up to the 50 dma.
Today’s strong market finally pushed the IBD market assessment back to Confirmed Uptrend. Let’s review the recent history:
• May 4th: Confirmed Uptrend to Uptrend Under Pressure
• May 7th: Uptrend Under Pressure to Uptrend Resumes
• May 10th: Uptrend Resumes to Confirmed Uptrend
• May 12th: Confirmed Uptrend to Uptrend Under Pressure
• June 4th: Uptrend Under Pressure to Confirmed Uptrend
The fact that IBD’s rather conservative measure has been whipsawed back and forth over the past month is telling. It isn’t just you. This has been an extremely volatile market that has challenged even the most experienced analysts.
It is easy to focus on today’s positive market action and perhaps even become euphoric. After all, the market has worn us down.
Review this week’s performances for each of the broad market indices:
• The S&P 500 was up 0.3%.
• The Russell 2000 was down 0.03%.
• The NASDAQ Composite was down 0.1%.
I hope today was indeed the sea change we want to see. But it pays to be somewhat circumspect. Caution and trading discipline still rule the day.
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The Standard and Poors index (SPX) tried to recover from its dramatic low on May12th but the recovery stalled this week. SPX closed Friday at 4156, down three points on the day or -0.1%. Friday’s close left SPX with a small decline of 0.3% for the week. Trading volume reached the 50 dma on Wednesday but remained below average the balance of the week.
VIX, the volatility index for the S&P 500 options had another volatile week, opening Monday at 20%, spiking to 26% on Wednesday and closing yesterday back at 20%. VIX is often called the fear index and this market is twitchy. It can’t decide whether it is bullish or bearish.
The Russell 2000 index, as measured by the IWM ETF, tried to recover from the low set on May 12th but couldn’t quite make it. IWM closed Friday at 219.97, just a touch higher than Monday’s open at 219.78. IWM tested the 50 dma on Tuesday and again yesterday but pulled back to close below the 50 dma both times.
The NASDAQ Composite index closed at 13471, down 65 points but the index managed a positive increase for the week of 0.8%. NASDAQ tried to recover its 50 dma on Friday but pulled back before the market closed. NASDAQ’s trading volume remained below average and declined all week.
Last week’s report of the consumer and producer price indices resulted in talk of runaway inflation and spooked the market. The market attempted a recovery move this week, but feel short.
NASDAQ remains weak and Friday’s failed attempt at breaking out above the 50 dma was disappointing. This week’s trading with its retest of last week’s low was disconcerting. Likewise, the Russell 200 can’t recover its 50 dma. The S&P 500 and the Dow Jones Industrials are the only major market indices trading higher than the 50 dma. I found myself closing several trades on Friday rather than risking the weekend and Monday’s open.
The cash basis of my trading accounts moved higher this week, from 75% to 92%. I didn’t open many new trades this week and I was cautious when rolling out current income positions. I continue to focus on stocks that appear to be weathering these transient storms well. There is nothing wrong with cash.
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The markets have plateaued for the past eleven trading sessions. The Standard and Poors index (SPX) closed Friday at 4181, down 30 points on the day, but SPX opened the week at 4185, so the index was essentially flat for the week. Trading volume finally reached the 50-day moving average (dma) Thursday and Friday.
The volatility index for the S&P 500 options, VIX, closed Friday at 18.6%, up one point on the day and also up one point on the week.
The IWM ETF, based on the Russell 2000 group of companies, has traded higher for the past couple of weeks, but that ended Thursday and Friday. IWM closed Friday at 224.89, down 3.10 points.
The NASDAQ Composite index closed at 13942, down 120 points, and down about 0.8% for the week. NASDAQ’s trading volume trended higher this week but remains well below the 50 dma.
Recent talk of increased taxes and new taxes seems to have stalled the bullish market trend, resulting in the flat, sideways trend of the past couple of weeks.
I remain with a slightly bullish perspective on the market. The market dipped a couple of times last week but recovered quickly. After all the talk of corrections since the first of the year, I took those recoveries as an encouraging sign.
The cash basis of my trading accounts hasn’t changed much this week, moving from 44% up a bit to 47%. I continue to trade, but cautiously. I am closing as many trades as I open. I closed my SBUX trade early and could have made more money if I waited until Friday, but I am locking in gains when I can and closing out trades at the first sign of trouble.
With a sideways market, it is crucial to only trade stocks that are bucking the trend. Look for charts of stocks that are up on down or flat market days. Be cautious and disciplined. Cash positions minimize your risk.
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After trading sideways for over a month, the Standard and Poors index (SPX) dramatically fell out of bed this week, closing at a low on Wednesday of 4063, down 2.7%. The market recovered somewhat on Thursday and then gapped open and traded higher Friday. However, even Friday’s strong move higher of 1.5% was not enough to result in a positive week for the S&P 500, down 1.3% for the week. Wednesday’s low almost reached the 50-day moving average (dma). Trading volume reached the 50 dma early in the week but declined Thursday and Friday.
VIX, the volatility index for the S&P 500 options took a wild ride this week, opening Monday at 17%, spiking to 28% on Wednesday and closing today just under 19%. VIX appears to suggest the market’s temper tantrum is over…
The Russell 2000 index, as measured by the IWM ETF, opened the week at 225.03 and hit a low on Wednesday of 211.85. IWM gapped open this morning and closed at 221.02, up 2.4% on the day, but down 1.9% for the week. IWM remains below its 50 dma at 222.98.
The NASDAQ Composite index closed at 13430, up 305 points or 2.3%, but the index remains down 1.9% for the week. The damage to this index has been significant, losing 8.3% since April 29th. Today’s close leaves NASDAQ well below its 50 dma at 13540. NASDAQ’s trading volume remained below the 50 dma all week and declined even farther today.
This week’s report of the consumer and producer price indices resulted in talk of runaway inflation and spooked the market. The reaction in the markets this week may have been excessive, but the potential of excessive inflation is real. The government has been printing money throughout this pandemic and talk of additional spending in the form of minimum wage increases and infrastructure spending are on the front page. Just as the pandemic stimulus bills contained little to support those actually hurt by the pandemic, I fear the same for an infrastructure bill.
The rotation out of high tech into classic industrial stocks is evident as we compare the S&P 500 with the NASDAQ Composite. But we cannot ignore the high-tech stocks that make up the NASDAQ. They now make up a large portion of our economy. NASDAQ has corrected by 8% and that will have ripple effects in the economy. In summary, there are many negative factors that cannot be ignored. On the positive side, it is remarkable that we have now had four pullbacks since the first of the year and each time the bulls have taken the opportunity to buy the lows. I worry about the possibility of the bulls losing heart.
This week’s market has taken its toll on my “slightly bullish perspective” on the market. I will be watching very carefully as next week unfolds.
The IBD market assessment reaffirms what we traders are feeling. That assessment moved from Confirmed Uptrend to Uptrend Under Pressure to Uptrend Resumes and then back to Uptrend Under Pressure in 7 trading sessions. We are being whipsawed in and out of this market.
The cash basis of my trading accounts moved significantly higher this week, from 47% to 75%. I didn’t open many new trades this week and was cautious when rolling out current income positions. I continue to focus on stocks whose price charts show them to be weathering these transient storms well. There is nothing wrong with cash.
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The markets have been on a strong bullish run higher since late March but the broad market averages have been drifting sideways for the past eight trading sessions. The Standard and Poors index (SPX) closed today at 4180, up 45 points, but SPX opened precisely at 4180 this past Monday. Trading volume continues to run below the 50-day moving average (dma), but it did move slightly higher a couple of days this week.
The volatility index for the S&P 500 options, VIX, moved as low as 15% one day last week, but VIX increased this week, bouncing between 17% and 20%, and closing today at 17.3%.
The IWM ETF, based on the Russell 2000 group of companies, has tracked within a channel defined by 215 and 226. IWM recovered its 50 dma today and closed up 4.18 at 225.76. These small to mid-cap companies should be leading the bullish trend, but they remain rather sedate. On the other hand, they aren’t being sold off aggressively either.
The NASDAQ Composite index closed at 14017, up 198 points, but that resulted in NASDAQ being essentially unchanged for the week. NASDAQ’s trading volume continued to just trend sideways, well below the 50 dma.
Talk of increased taxes and new taxes put a damper on the markets this week. But the effects were rather subdued, resulting in a sideways, lethargic market. The market has hit a plateau, which is normal in a bullish trend. It is important to note that we have had several opportunities in the past couple of months for the bears to take control, but it hasn’t happened. The bulls are not aggressively buying, but they are holding the broad indices largely unchanged.
I found a larger number of good stock charts this week and that increased my market disposition to slightly bullish. I entered more trades today and that shifted the cash basis of my trading accounts from last week’s 58% down to 44% today. Stocks seem to be prone to short runs higher followed by quick pull backs, and then it starts over. Many of my losses in the first quarter would have recovered if I had ignored my stops – but that would be a fool’s errand.
