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The Standard and Poors 500 Index (SPX) opened this shortened holiday week at 3226 and closed Friday at 3240, up about 0.4% for the week. Monday, Tuesday and Friday were typical for a holiday week, with largely sideways trading. Exchanges closed early on Tuesday and were closed Wednesday. But SPX traded strongly higher as the market reopened on Thursday. Friday’s trading was subdued and trading volume was significantly below average all week.
Traders are increasingly optimistic about the passage of the Mexico/Canada trade agreement and the proposed trade agreement with China. The bulls have been released and they are going all in. Apple (AAPL) is a good example, trading up 12% just in December. Apple’s stock price has been subject to some volatility as the trade negotiations with China seemed to spurt forward, stall, and then resume.
The volatility index for the S&P 500 options, VIX, has been running around 12% for the past two weeks. VIX dropped below 12% intraday on Thursday and Friday, but could not hold those lows and closed Friday at 13.4%. The small rise on Friday betrays some residual concern on the part of large institutional traders. The prevailing concern appears to be whether the market has run too high and too quickly. Traders may be hedging portfolios.
IWM, the ETF based on the Russell 2000 group of companies, pulled back a bit on Friday, closing at 166, down 0.8 on the day. This appears to be a magnification of the broad market indices trading a little more weakly on Friday. The Russell 2000 serves as a measure of the degree of “risk on” or “risk off” for the large institutional traders.
The bulls drove the NASDAQ Composite index higher on Thursday, but surrendered about half of those gains on Friday, closing at 9007, down 16 points on the day, but up 0.6% for the week. Trading volume on NASDAQ came in below the 50 day moving average (dma) every day this week.
It would be a mistake to read too much into the market’s trends based on a week shortened by one and a half days of trading and extremely low trading volume on the days the market was open. It is probably safe to expect the bulls to continue to push higher into next week, but the big question mark will be whether the so-called Santa Claus rally ends with the year or continues into January. Historically, the first five days of trading in January provide a pretty reliable prediction for the year’s market. But the November elections may throw a wrench into the works.
I am bullish, but I also remain cautious. The trends in VIX are instructive. It is reasonably low, but not too low. The large institutional traders are watching carefully. Retail traders like us would be well advised to do the same.
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The Standard and Poors 500 Index (SPX) opened the week at 3184 and closed Friday at 3221, up 16 points on the day and 1.2% for the week. SPX gapped open higher Friday morning and held its gains through the day. Trading volume spiked higher, but this was probably due to the expiration of several index option and futures contracts, viz., this quarter’s quadruple witching.
The strength of the market this week was primarily due to increased optimism concerning our trade negotiations with China. Those reports are very preliminary with few solid details, so that remains a possible source of volatility for the markets.
VIX, the volatility index for the S&P 500 options, opened and closed the week at 12.5%. This isn’t a record low, but it does suggest that the large institutional traders are relatively calm. In the absence of any surprising news, volatility is likely to remain low this week as many traders are on holiday.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week, opening at 164 and closing up 1.2% at 166. IWM gapped open higher each morning this week. You don’t see that every day.
The bulls didn’t forget the NASDAQ Composite index this week, closing the week at 8925, up 1.5% on the week. NASDAQ displayed a strong gap opening higher Friday morning. Trading volume on NASDAQ came in above the 50 dma every day this week, and then spiked yesterday, primarily as a result of quadruple witching.
This week’s market delivered a strong performance with each of the broad market indices gaining 1.2% to 1.5%. If we take a longer term view of this year’s market, we find three major trading sessions. The first was a strong bullish market from the first of the year until early May.. Then the market traded roughly sideways through early October, and blasted higher for the balance of the year. The price action of IWM this week reinforced the overall bullish nature of this market. The high beta stocks are finally seeing some action as bullish traders begin to take on more risk. Speculation about the China trade negotiations will continue to deliver periods of price volatility. Threats from North Korea may send the markets a surprise as the new year approaches. I am bullish, but I also remain cautious. Keep a close eye on this market and keep your stops tight.
Merry Christmas and best wishes for a prosperous and happy new year.
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The Standard and Poors 500 Index (SPX) opened the week at 3144 and plunged nearly one percent to close at 3114 on Monday. But the worst was yet to come. Tuesday’s open was again nearly one percent down, but after trading as low as 3070, SPX recovered to close at 3093. Then Wednesday brought a gap opening higher and the Standard and Poors 500 Index closed today at 3146, almost a perfect round trip from Monday’s open. The bulls are in charge, but they are very nervous. Be careful you aren’t trampled in the stampedes.
Just as we have seen in recent weeks, this week’s market schizophrenia was triggered by comments about the trade negotiations with China. An off-handed comment from President Trump while he was in Europe triggered this sell off, but many times it starts with only a rumored comment from an unnamed insider. Trading volume for the S&P 500 companies continues to run below average, only breaking the 50-day moving average (dma) on Tuesday’s scary gap downward.
The volatility index for the S&P 500 options, VIX, opened the week at 12.7% and closed on Monday at 14.9%. But the severe drop on Tuesday pushed the intraday VIX to 18% before settling back and declining the rest of the week, closing today at 13.6%.
IWM, the ETF based on the Russell 2000 group of companies, has traded much more weakly than the S&P 500 companies all year. That correlation shifted this week. IWM matched SPX’s price action almost exactly, breaking support on Tuesday, but then recovering strongly to close today at 163, slightly higher than Monday’s open. This price action is bullish. Bull markets are typically led by these small to mid-cap stocks. Many analysts call these stocks the “risk off” stocks as traders swing for the fences in a strong bull market. I can’t be that bullish as long as the China trade cloud hangs over the market. But it is a bullish indicator.
The NASDAQ Composite index opened the week at 8673, and closed the week at 8657, up 86 points today – almost a round trip from Monday’s open. NASDAQ trading volume has been consistently running above the 50 dma far more often than the S&P 500 index. NASDAQ’s trading volume this week was at or above the 50 dma every day. That is probably driven by the so-called FANG stocks, FB, AMZN, NFLX and GOOGL. I would add AAPL to this list. The large high-tech stocks have been driving this bull market.
This week’s roller coaster ride was a little scary. That gap down in price on the S&P 500 Tuesday morning was alarming. But then we end the week where we started? This week’s trading is the best evidence yet of the nervous nature of this market. The large institutional traders have their fingers poised over the sell buttons (actually they have programmed their computers, but the poised finger delivers a more powerful image).
On the positive side, the price action of IWM was very bullish. IWM matched SPX toe to toe this week and even closed the week higher than it started. IWM has traded much weaker than the broad market blue chips most of this year.
I am putting more of my cash to work, but this week was unnerving. I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. But it is anyone’s guess when that might happen. Be cautious.
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The Standard and Poors 500 Index (SPX) opened the week at 3142, almost exactly where last week’s trading opened, and managed to finally gain some steam on Thursday, closing Friday at 3169, up almost 1%. The bullish trading pattern was similar to recent weeks, with price volatility driven by the latest news and rumors about the progress of the China trade negotiations. Thursday’s strong run higher on increased trading volume was driven by the announcement of a phase one deal, but then Friday’s market was much more subdued as traders realized that the specific terms of the deal were a bit cloudy. Trading volume for the S&P 500 companies increased this week, strongly breaking the 50-day moving average (dma) on Thursday, but remaining only slightly above average on Friday.
VIX, the volatility index for the S&P 500 options, opened the week at 14.3% and spiked upward to close Monday at 15.9%. VIX then steadily declined the balance of the week, closing Friday at 12.6%. The large institutional traders are relatively calm.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week and I view this as a bullish sign since markets are typically led by these small to mid-cap stocks.
The NASDAQ Composite index also traded in a similar pattern to the S&P 500, closing the week at 8735, up 1% on the week.
This week’s market was much more steady than last week’s wild ride. Traders are a little cautious about going “all in” based on the vague announcements about the China trade deal. Even when the details of the phase one trade agreement are made public, the market may not trade significantly higher. Much of that positive trade agreement news may be already priced into this market. Any surprises in the trade agreement could result in a sharp pullback.
The price action of IWM this week once again matched SPX toe to toe. IWM has traded much weaker than the broad market blue chips most of this year. But that relationship has been turning positive over the past couple of weeks and that is a bullish sign.
This week was more encouraging, but I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. My best guess is that the phase one trade agreement will be somewhat disappointing when we finally see the details. The phase two agreement may be several months into next year, if not after the November elections. Therefore, we may be in for more of the price volatility we have been living with for the past three or four weeks, as rumors and speculation about the China trade negotiations hit the market. I remain cautious.
The following stocks traded strongly this week and will be on my watch list for next week: AAPL, AXP, BSX, GOOGL, BMY, MRK, and UNH.
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I have almost become accustomed to the Standard and Poors 500 Index (SPX) setting new all-time highs every week. It seemed quite reasonable that the markets would slow a bit this week, but then the S&P 500 index gapped open higher Friday morning and set a new all-time high. Wow.
But before we run off and sell everything we own and buy stocks, it is a bit sobering to pay attention to the trading volume. Friday was the only day this week that trading volume for the S&P 500 companies reached the 50-day moving average (dma). And it just reached it; volume did not break higher. That serves to moderate my bullish enthusiasm.
VIX, the volatility index for the S&P 500 options, closed Friday at 12%. This was the lowest closing level for volatility this year. One must go back to September 21st, 2018 to find a lower close for VIX. Traders are feeling calm and bullish.
IWM consists of the Russell 200 companies, largely small to mid-cap domestic companies with higher beta values. These are the “risk on” stocks. IWM has been trapped in a sideways channel defined on the lower edge by the highs from August and September around 157.50, and on the upper edge by the intraday highs around 160 from the last two weeks. IWM closed Friday at 158.9, up 0.82. A breakout of IWM would be a strong confirmation of the bull market.
Similar to the S&P 500 companies, the NASDAQ Composite index set a new
all-time high on Tuesday, but traded flat most of this week. NASDAQ gapped open Friday morning and ended the day at a new all-time high of 8541, up 62. NASDAQ trading volume was stronger than the S&P 500 companies, breaking out above the 50 dma three out of five days this week.
We continue to see consistent bullish signals over the past several weeks with new all-time highs on several of the broad market indices, Dow Jones Industrials, S&P 500, and NASDAQ. Moderately weak trading volume and IWM’s sideways trading are the principal cautionary signals.
The strong market surge on Friday came as a result of positive news on the trade negotiations with China. Be careful not to jump too soon or too strongly. We don’t have a signed trade deal as yet. The market is certain to leap higher on the news of a signed deal, but it also bears repeating that even a rumor that a deal is being delayed once again will cause a pullback in the markets.
My trading posture is bullish but I remain cautious. My stops are tighter and I don’t hesitate to close my losers. The price charts for the following stocks are impressive: AAPL, EW, GOOGL, LULU, MSFT, and PANW.
