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The Standard and Poor’s 500 Index (SPX) closed today at 3341, up a couple of points on the day but down almost one percent on the shortened holiday week. It appears as though the 50-day moving average (dma) provided support to the sell-off that started last week. The index nearly touched the 50 dma on Tuesday and Thursday, and then broke through the 50 dma today, but recovered decisively to close above support. It is hard to take much encouragement from today’s bounce; it has been a volatile week for the market. The question remains whether this is just a temporary step on an overall trend lower, or just part of a sideways cooling off period. Trading volume for the S&P 500 companies spiked up above the 50-day moving average (dma) on Tuesday but has declined the rest of the week. That decline in trading volume was a welcome relief, suggesting there was little interest in a strong move to cash.
The volatility index for the S&P 500 options, VIX, spiked higher on Tuesday, but dropped back at the close and has declined steadily all week – again, an encouraging sign. VIX closed today at 26.9% after hitting an intraday high of 36% on Tuesday. Much of the anxious edge has subsided this week.
IWM, the ETF based on the Russell 2000 group of companies, traded along its 50 dma all week, closing today at 149.15, down only one point today, but down 1.3% for the week. IWM traded more weakly than the broad market indices this week, as one would normally expect. The fact that IWM didn’t fall off the cliff is encouraging because these are usually the first stocks to be sold when the panic starts.
The NASDAQ Composite index closed today at 10,854 for a loss of 66 points. However, NASDAQ was relatively flat this week, closing down 0.4% for the week. The talking heads were talking sector rotation today, but NASDAQ remains reasonably solid. Trading volume was below average all week and the index essentially traded sideways. NASDAQ remains almost ten percent above its
pre-correction high. For all the talk of NASDAQ being the poster child for this frothy market, it didn’t sell off as strongly as one might have expected.
As everyone around me knows, I have been worried about this market for quite a while now. The prices just didn’t seem consistent with the economic damage we continue to witness. Many of my stops tripped last week, but I have added new positions this week. I am not bullish, but I am doing my best to extract some quick profits where I can find them. In my opinion, the market remains over priced. There are opportunities if you have the freedom and expertise to find them.
I recommend you watch this market very diligently. It turns on a dime. I played the Peloton earnings announcement last evening and closed the trade only a few minutes after the market opened this morning for a 58% gain. If I had waited, nearly all of those gains would have been gone by noon.
This market is volatile and very nervous. If you can’t watch it throughout the day, you would be well advised to stay largely in cash and wait on the sidelines. There is nothing wrong with taking a pass right now.
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The Standard and Poor’s 500 Index (SPX) closed Friday at 3427, down 28 points on the day. Thursday and Friday took their toll on the market with the S&P companies losing 2.4% this week. On August 24th we broke out above the pre-correction high of 3386 and kept trading higher. But that pre-correction high appears to have served as support Friday as SPX broke down through that level to hit its intraday low mid-morning but then began a steady recovery of much of the day’s losses before the close of trading.
For several months trading volume for the S&P 500 companies has run well below the 50-day moving average (dma). That changed on Thursday and Friday as trading volume spiked on the large trading declines. I initially took that as an emphatic underscoring of the declines. But Friday’s recovery was also at above average trading volume. That was encouraging.
The volatility index for the S&P 500 options, VIX, spiked higher on Thursday and Friday as SPX collapsed. VIX closed Friday at 30.8% after hitting an intraday high of 38.3%. I will be watching VIX closely as the market reopens on Tuesday.
IWM, the ETF based on the Russell 2000 group of companies, followed the broad market indices off the cliff Thursday and Friday, closing at 152.80 on Friday, down 2.8% for the week. The S&P 500 declined 2.4% for the week. Normally, the Russell 2000 rises and declines at a much faster rate. This four tenths of a point differential seemed smaller than I expected. This may suggest that the recovery we saw Friday afternoon will continue next week. IWM bounced off its 50 dma at 149.98 before closing at 152.80 on Friday.
The NASDAQ Composite index closed Friday at 11313 for a loss of 145 points. NASDAQ lost 3.5% of its value this week, which was not surprising since this market rally has been led by NASDAQ stocks. This index bounced off its 50 dma to recover strongly on Friday. NASDAQ remains 13% above its pre-correction high. That is rather amazing.
I have been worried about this market for several weeks now. It just didn’t seem reasonable that the market prices should be back to pre-correction highs after all of the self-inflicted economic damage that has been done (and continues here in Illinois). When I saw the market drop off significantly on Thursday and then open lower on Friday, my only question was how low it would go. But then it started recovering Friday and that surprised me.
One of the fundamental lessons of trading is to trade what the market gives you, not what you think makes sense. In that spirit, I began to stick a couple of toes back into the water late Friday. I am largely in cash and feeling comfortable with that over this long weekend. However, I did take a flyer Friday. I surveyed my watch list and noted the stocks that were holding up best in this downturn. TSLA stood out. TSLA opened Friday at $403, traded down to $372 and then traded higher to close at $418, up 11 points on the day. I could not resist. I bought 100 shares of TSLA at 406.07 and sold the Sep(9/11) $405 call for $26.30. The assigned return would be 6.6%.
Watch the opens Tuesday morning carefully. Don’t jump too quickly. Even if it opens higher, it could reverse itself in that first hour of trading. It is a dangerous market. Remaining largely in cash is prudent.
Enjoy your holiday weekend. Remember to thank those people in your life whose work ethic made your life what it is today.
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The Standard and Poor’s 500 Index (SPX) closed Friday at 3271, up 1.6% for the week. That doesn’t tell the whole story. Friday’s low was exactly at Monday’s open. Late afternoon trading pulled the market back up on above average volume. It was the only trading session this week that exceeded the 50-day moving average (dma). In fact, it was the first day to break the 50 dma in 24 trading sessions.
The S&P 500 remains about 4% below its pre-correction high. In my opinion, reality is catching up to the markets as the enormity of the economic damage done by the lockdown is more evident. Current market prices appear hard to justify.
VIX, the volatility index for the S&P 500 options, declined modestly this week, opening the week at 26.6% and closing Friday at 24.5%. We may be accustomed to these levels of volatility, but it is prudent to remain on alert. These are not low levels of volatility. This remains a dangerous market.
The NASDAQ Composite index closed Friday at 10,745, up 3.1% for the week. Several high-tech stocks had earnings announcements this week and almost all traded higher. NASDAQ’s intraday trading pattern on Friday was similar to the other broad market indices, trading much lower early Friday but rebounding late to close virtually unchanged on the day.
The last two weeks in July have been essentially a sideways market price pattern. My personal assessment is that market analysts are beginning to realize the amount of permanent economic damage that has been caused by the economic shutdown. It is hard to reconcile 17 million people on unemployment with a Standard and Poors market index that is only 4% below its pre-correction high. As I wrote last week, I am happy the market has rebounded so strongly, but I don’t understand how that makes sense. Carefully weigh the risks of this market. There is money to be made but manage the risk prudently.
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The Standard and Poor’s 500 Index (SPX) closed Friday at 3397, up 12 points on the day and up 0.5% for the week. On Tuesday, SPX broke the all-time high of 3386 set on 2/19/20. It still perplexes me how we could possibly be back where we were before this economy was effectively shut down a few months ago. The price chart reminds me of a math function asymptotically nearing its maximum value. The prices appear to have been flattening out as we neared the February high. Nothing changed this week on the trading volume front. Trading volume for the S&P 500 companies remains anemic, running well below the 50-day moving average (dma) all week. I interpret this as a sign of caution. Large amounts of cash remain on the sidelines or in safer investments.
The volatility index for the S&P 500 options, VIX, opened the week at 22.5% and closed unchanged Friday at 22.5%. VIX dipped early in the week, but then rose to close flat on the week. Volatility levels above 20% are relatively high historically, even though we may be becoming accustomed to them at this point. This remains a nervous market. Be cautious.
As the S&P 500 index leveled out this week, IWM, the ETF based on the Russell 2000 group of companies, declined. IWM opened the week at 157.50 and closed Friday at 154.61, down almost 2%. The small cap stocks on the Russell 200 act as the canaries in the coal mine and may be the early warning signal of a pullback. At a minimum, it adds to my caution.
The same old story is still unfolding for the NASDAQ Composite index. It opened the week at 11,083 and closed at 11,312, up 2.1%. Friday’s close set another all-time high for NASDAQ. NASDAQ’s trading volume has been running below the 50-day moving average (dma) with only two exceptions since the first of July, but volume did perk up a bit Thursday and Friday.
Where do we stand? One could superficially think the storm has passed. After all, we are back where started before this nasty correction. All is well. Baloney.
I don’t know of any rationale for these market price levels. Cautionary signs abound:
• Below average trading volume as prices move higher
• Flattening of the S&P 500 as we near the pre-correction highs
• The Russell 2000 turning downward
• Market volatility (VIX) remains moderately high
• Fifteen million people are unemployed
However, I am making a lot of money in this market. I brought in 5.2% in my trading accounts during the August expiration month. Don’t annualize that return; it will make your head explode.
The majority of that income has come from selling calls and puts against large blue-chip stocks. Volatility remains high and consequently the options are expensive. Traders often forget that higher volatility brings higher risk. I am managing the stops more conservatively so I shouldn’t give back much when this market ride ends.
Carefully weigh the risks of this market. There is money to be made but manage the risk prudently.
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The Standard and Poor’s 500 Index (SPX) closed today at 3216, down 0.2% for the week. Today’s close broke down through the earlier high set at 3232 on June 8th. The question on everyone’s mind is whether this is merely the breather we expect during a bullish trend higher, or if the market is changing direction. Trading volume for the S&P 500 companies has been running below the 50 dma consistently since June 26th. As I have written before, I believe this indicates that traders are apprehensive about the state of this economy and whether the market has correctly priced in the economic damage. Large amounts of cash remain on the sidelines. Traders are reluctant to “go all in”.
VIX, the volatility index for the S&P 500 options, declined earlier this week to 24%, but popped up slightly to close at 26% today. We often regard VIX as the fear index. On that basis, the general level of anxiety is elevated, but not rising. That tells me that fingers are poised over the sell button on any negative news. Don’t be lulled into complacence.
The NASDAQ Composite index closed today at 10,363, down 1.5% for the week. Today’s decline appeared to find support near the index value from last Tuesday, 7/14. If NASDAQ breaks down through that level next week, there is a congestion of support around the 50 dma at 9933. Trading volume has been running below the 50 dma over this entire NASDAQ bullish run. And that didn’t change this week.
Two very different conclusions from our market analysis are possible at this point. The more positive assessment is the standard observation about bull markets taking the stairs higher and frequently pausing for a breather. A less optimistic conclusion might suggest that market analysts are beginning to realize the amount of permanent economic damage that has been caused by the economic shutdown.
Over sixteen million people are on unemployment. We have not seen these numbers in my lifetime. The final bankruptcy count is still out, but many small businesses will not reopen. Market price averages that suggest the damage is only on the order of 5% seem naïve.
I am more optimistic by nature, but I have to take the pessimistic view of this market. I am happy the market has rebounded so strongly, but I don’t understand how that makes sense.
Carefully weigh the risks of this market. There is money to be made but manage the risk prudently.
