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The Standard and Poor’s 500 Index (SPX) closed yesterday at 3943, up 4 points, but up 2.6% for the week. From the intraday low on March 4th, the low of this pullback, SPX has increased 5.9%. Trading volume on the S&P 500 has been declining throughout this recovery, dipping below the 50 day moving average (50 dma) on Friday.
VIX, the volatility index for the S&P 500 options, closed Friday at 21%. The spike intraday to 32% on March 4th represented the high for this pullback. VIX has been running at a baseline in the low twenties since the March 2020 correction.
IWM, the ETF based on the Russell 2000 group of companies, closed at 233.59 Friday. IWM bounced back 12.7% from the intraday low of this pull back on March 5th. IWM set new all-time highs on Thursday and Friday. The small to mid-cap companies of the Russell 2000 are high beta stocks that tend to lead markets higher in the “risk on” phase and lead markets lower in the “risk off” phase.
The NASDAQ Composite index closed Friday at 13,320, up 79 points on the day and up 3.2% for the week. NASDAQ is the weakest of the broad market indices and remains below its 50 dma. The previous all-time high for NASDAQ was set at 14,152 on 2/16 and the index remains nearly 6% below that high. NASDAQ led the previous bull markets but is lagging behind on this cycle. NASDAQ’s trading volume steadily declined all week and remains well below the 50 dma.
Technical analysts use a standard terminology of a market correction being called whenever the market drops by more than 10% and lesser declines are just termed pull backs. By that standard, the S&P 500 index pulled back by 4% before recovering, and the Russell 2000 index pulled back by 7%, but the NASDAQ Composite corrected by 11%. In similar fashion, SPX and IWM reclaimed their all-time highs set in February while NASDAQ remains 6% below its all-time high of 2/16.
Most market analysts are seeing the stimulus bill as the key to this latest recovery. Other analysts are encouraged by progress with the vaccine and several states beginning to reopen. The market appears to be pricing in a strong economic recovery. That analysis may be too optimistic. A large number of small businesses won’t be reopening as the states reopen.
I am not fully invested at this point. However, I am trading cautiously. Keep your stops close.
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The Standard and Poor’s 500 Index (SPX) closed today at 3847, up 73 points. It is surprising to note that today’s close was within one point of the opening Monday morning. This week has been chocked full of large moves both up and down, throwing fear into many traders, but we ended the week where we started. Trading volume spiked up above the 50-day moving average (dma) yesterday and remained above average today as well. The lows both yesterday and today were very close to the lows set in the pullback toward the end of January. In spite of all of the doom and gloom, this market seems to be finding support.
VIX, the volatility index for the S&P 500 options, closed today at 25%. After spiking as high as 32% yesterday, this was a dramatic reversal.
IWM, the ETF based on the Russell 2000 group of companies, closed at 217.71 today, down 2.6% for the week. The high this year for IWM was 215 in mid-January and that level has been tested several times over the past couple of weeks. The 50 dma was tested yesterday and IWM opened this morning and ran down through the 50 dma before turning and closing well above that level today. The Russell 2000 remains the only broad market index that has not broken its 50 dma this week.
The NASDAQ Composite index closed today’s trading at 12,920, up 197 points on the day but down 3.6% for the week. NASDAQ broke its 50 dma once last week and then recovered, only to break down through the 50 dma on Wednesday this week. Even after a dramatic reversal this afternoon, NASDAQ remains well below the 50 dma at 13,341. NASDAQ’s trading volume remained below average all week, except for a spurt higher on Thursday.
This was an interesting week in the markets with three very bearish trading days and two gap openings lower Wednesday and Thursday. With the exception of the Russell 2000, the other broad market indices all broke their 50 day moving averages this week. Yesterday’s performance caught my attention and caused me to start playing defense and being reticent to add new positions.
But what a difference a day makes. SPX opened roughly at the intraday high from yesterday, tested yesterday’s lows and then proceeded to trade higher and soundly recover the 50 dma. The S&P 500, NASDAQ and the Russell 2000 all staged strong intraday recoveries today, but NASDAQ’s was the most dramatic. It closed a few points higher than this morning’s open after falling almost 500 points from the open, even setting a lower low than yesterday’s intraday low. You don’t see that very often.
Well, that is all very interesting, but where does it leave us? After the dust settled today, we have two indicators that appear surprisingly positive. One is the strong intraday recoveries staged by the S&P 500, NASDAQ and the Russell 2000. A stronger bullish signal came from the Russell 2000 index. This index is comprised of small to mid-capitalization stocks. These are the classic high beta stocks that tend to outperform the S&P 500 whether it is moving higher or lower. They are the stocks sold first in a panic. But that didn’t happen this week.
Since the first of this year, the S&P 500 is up 2%, the NASDAQ Composite is down 0.3%, and the Russell 2000 is up 10%. Yes, I checked my numbers. The Russell 2000 has gained a little over 10% for 2021 year to date.
By contrast, what we saw in the March correction last year was more typical: the S&P 500 lost 35%, the NASDAQ Composite lost 27%, and the Russell 2000 was the winner of the race downward at 43%. These are the classic stocks bought when traders yell “risk on” and sold when the tide turns. Why are they holding up so well this year?
I will remain cautious as trading opens Monday, but I don’t feel nearly as anxious as I did at yesterday’s close.
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The Standard and Poor’s 500 Index (SPX) closed Friday at 3907, down 7 points on the day, but down 0.8% for the week. I am watching the support level formed this week and last week around 3875. If SPX breaks support, it could be headed lower. SPX’s trading volume ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed Friday at 22%. As one might expect for a flat market week, VIX was in a narrow range this week of 21% to 24%.
IWM, the ETF based on the Russell 2000 group of companies, closed at 225.19 Friday, down 1.9% for the week. IWM has shown weak support at 219 and stronger support at 215. A break below 215 would be a warning signal.
The NASDAQ Composite index closed Friday at 13,874, up 9 points on the day but down 2% for the week, close to the losses of the Russell 2000 index. NASDAQ’s trading volume ran slightly above and below average all week, and closed Friday almost precisely at the 50 dma.
This was a bearish week for the markets with the Russell 2000 index (the basis of IWM) and the NASDAQ both losing about two percent and the S&P 500 index losing almost one percent. The only positive signs were some weak signs of recovery on Friday.
Market analysts are in two camps. One remains bullish and the other is nervous, expecting a pullback or possibly a correction soon. Of course, the usual doomsday gurus are being interviewed on the financial networks. I find it hard to take them too seriously. It’s the “boy cried wolf” problem. I doubt the end of the world scenario, but a pullback or correction would not be surprising at all.
I am continuing to sell these elevated levels of volatility, but I am also closing positions aggressively when they move against me the least bit. Several stocks continue to post strong gains. Watch your positions very closely. It is a nervous market.
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The Standard and Poor’s 500 Index (SPX) bounced off of its 50-day moving average (dma) on Tuesday, recovered and then tested that support level again today, closing at 3811, right at the 50 dma at 3808. Trading volume in the S&P 500 companies increased steadily all week. I believe this shows some selective selling in anticipation of additional pullbacks next week.
VIX, the volatility index for the S&P 500 options, closed today at 28%. Both yesterday and today, VIX spiked as high as 31%. Volatility ranged quite a bit today, from as low as 25% to a high of 31%. Traders are nervous.
IWM, the ETF based on the Russell 2000 group of companies, closed at 218.31 today, down 2.3% for the week. IWM continues to show support at 215, bouncing from that level Tuesday and again today. That makes 215 a good “line in the sand” to watch.
The NASDAQ Composite index closed today at 13,192, down 72 points on the day but down 3.8% for the week, exceeding the losses of both the Russell 2000 index (-2.3%) and the S&P 500 index (-1.9%). NASDAQ’s trading volume declined steadily this week, remaining below the 50 dma.
We close another bearish week for the markets with all of the broad market indices losing 2% or more of their value. The markets are holding at key levels of support this week, but a pullback or correction appears more and more likely. Perhaps we will retest those early February lows.
I am continuing to sell these elevated levels of volatility, but I am also closing positions aggressively when they move against me. Several stocks continue to post strong gains. Deere (DE) is a good example, posting gains this week after its earnings announcement on Monday. I sold the Feb(2/26) 345 put on Wednesday for a 1.2% yield in two days. It will expire worthless tomorrow. But I chose not to roll it out to next week. A weekend can be a long time in this market.
Watch your positions very closely. It is a nervous market.
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The Standard and Poor’s 500 Index (SPX) continued its steady climb higher this week, closing today at 3935, up 18 points and up 1.1% for the week. It seems too good to be true, especially when one looks at the weak economic data. However, SPX is continuing this march higher with steadily declining trading volume. One should not bank too heavily on higher prices being achieved on lower volume.
VIX, the volatility index for the S&P 500 options, closed today at 19.97%. I was surprised when I expanded the chart and found that today is the first day VIX has closed below 20% since its close at 17.1% on 2/21/20, just before the market went off the cliff.
The NASDAQ Composite index closed today at 14,095, up 70 points today and up 1.1% for the week, identical to the gains of the S&P 500 index. NASDAQ’s trading volume advanced all week but suddenly retreated to close at the 50 dma today. Did everyone leave early for the long weekend?
This market is whipping traders back and forth. Consider the S&P 500 index price chart over the past three weeks. SPX lost 4% during the week ending 1/29, but then gained it all back with a 4% gain last week. SPX continued its run higher this week, although at a somewhat slower pace of 1%. It isn’t surprising that traders are nervous and the “sky is falling” crowd are all carrying their “end of the world” posters.
The S&P 500 volatility index, VIX, closed below 20% today for the first time since February 21st of last year, just before the March correction. An old adage about VIX goes, “When the VIX is low, it’s time to go”. This is based on the observation that volatility cycles between the lows and highs as the market cycles. However, the same disclaimers apply here as predicting market highs and lows. The VIX may be lower than it has been in nearly a year, but it could go lower. At a minimum, it is wise to be cautious and watch the market very carefully.
I am carefully positioning my stops tighter, closing trades when they trip the stop, and closing early when I can lock in gains and take some risk off the table.
Enjoy the long weekend.
