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The Standard and Poors 500 index (SPX) closed today at 5124, down 34 points or -0.7%. SPX opened the week at 5131, setting up a weekly loss of 0.1%. Today’s loss appeared to start with this morning’s jobs report. Trading volume has declined all week and has been below the 50-day moving average (dma) for the last two days.
VIX, the volatility index for the S&P 500 options, closed today at 14.7%. VIX opened the week at 13.5% but rose steadily as the market softened and traders looked for protection.
I track the Russell 2000 index with the IWM ETF, which closed today at 207, down a tenth of a point on the day and unchanged for the week. IWM remains above the previous high from 2023 that it broke last week. But IWM remains below its all-time high of 237 from 2021.
The NASDAQ Composite index closed today at 16,085, down 188 points or -1.2%. NASDAQ opened the week at 16,264, for a weekly loss of -1.1%. NASDAQ’s trading volume followed the same pattern as SPX, hitting a high on Tuesday and declining the rest of the week.
Today’s decline in the markets was triggered by the jobs report coming in better than expected. It may seem odd that good news hurts the market, but in this case, good news causes the large institutional traders to worry that strong job growth will convince the FOMC that the economy is too hot to lower interest rates anytime soon. Ever since the December meeting of the FOMC, the large traders have been convinced that rates would be declining as early as the first quarter of this year. However, one of the committee members offered the opinion earlier this week that rates might not decline until the fourth quarter of this year, if at all.
The implied volatility of the S&P index, as measured by VIX, didn’t rise very much this week, closing at 14.7%. A modest amount of protection is being purchased.
I continue to miss one significant characteristic of a strong bull market, i.e., increased trading volume. The S&P 500 index and NASDAQ Composite have been trading with volume generally below the 50 dma this year with only a few exceptions. Trading volume declined this week on both broad market indices.
The strongest sign of a continued bull market may be inferred from the Russell 2000 index, as measured by IWM. While SPX and NASDAQ took a haircut this week, IWM ended the week unchanged. On the other hand, IWM remains well below its all-time high from 2021. SPX and NASDAQ slipped below last week’s all-time highs today.
I am not ready to throw in the towel on the bull market yet, but we certainly took a warning shot across the bow today.
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The Standard and Poors 500 index (SPX) closed today at 5137, up 41 points or 0.8%. SPX opened the week at 5093, setting up a weekly gain of 0.8%. Today’s strong showing made up for earlier losses this week. Trading volume ran below the 50-day moving average (dma) all week with the exception of Thursday; I don’t know why it spiked then.
VIX, the volatility index for the S&P 500 options, closed today at 13.1%. VIX opened the week at 14.2% but steadily declined the rest of the week.
I track the Russell 2000 index with the IWM ETF, which closed today at 206, up two points on the day (+1.1%) and up three percent for the week. IWM broke the previous high for 2023 at 205 today, but it remains well below its all-time high of 237 from 2021.
The NASDAQ Composite index closed today at 16,275, up 183 points or 1.1%. NASDAQ opened the week at 16,014, for a weekly gain of 1.6%. NASDAQ remains shy of its all-time high from 2021, 16,212. NASDAQ’s trading volume ran at or slightly below the 50 dma all week with the exception of Thursday. What happened on Thursday?
I think the last two years in the market have conditioned me to expect the worst. Since this bull run began in November, I remained pessimistic, expecting a correction. But every time the market pulled back a bit, traders bought the dip and off we went. I tend to evaluate the market on the basis of the economic data, which have been mediocre at best. Every time I see a grocery bill or the cost of a meal at a familiar restaurant, the rate of inflation is impressive – and somehow is much higher than the 3% that is reported by the government.
With all of this bullish price action, one might expect implied volatility to be dropping, but the decline hasn’t been significant. VIX only lost one percentage point this week, closing today at 13.1%. Historically, that is higher than past bull markets. The large institutions may be a bit concerned, but the market steadily pulls ahead.
The Russell 2000 index, as measured by IWM, has been slow to jump on the bulls' wagon. IWM has also been much more volatile that the other broad market indices. IWM has gapped open either higher or lower nine times in February.
One bullish signal is missing in all of this bullish price action and that is higher trading volume. Both the S&P 500 index and NASDAQ have been trading with volume at or below the 50 dma this year with only a few exceptions.
The S&P 500 set a new all-time high today. I was watching the one-minute chart today, and SPX just motored higher all day. I kept expecting a last-minute sell-off as traders took profits, but it didn’t happen. That was a strong bullish signal, especially for a Friday afternoon.
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The Standard and Poors 500 index (SPX) closed today at 4959, up 52 points or 1.1%. SPX opened the week at 4893, setting up a weekly gain of 1.3%. Trading volume ran above the 50-day moving average (dma) most of the week. After a disappointment on Wednesday that rates were not likely to be raised by the FOMC at the next meeting, the bulls got over it and opened today's trading with a gap opening and a very strong showing.
VIX, the volatility index for the S&P 500 options, closed today at 13.9%. Even with the market’s large pullback on Wednesday, VIX didn’t exceed 14.5%. The bulls didn’t even blink.
I track the Russell 2000 index with the IWM ETF, which closed today at 194, down a full point on the day (-0.5%) and down one percent for the week. IWM remains 5.4 percent below its December high at 205. These are the high beta stocks that should be leading a true “risk on” bullish run.
The NASDAQ Composite index closed today at 15,629, up 267 points or +1.7%. NASDAQ opened the week at 15,455, setting up a weekly gain of 1.1%. NASDAQ really tanked on Wednesday, making it difficult to fully overcome that loss this week. NASDAQ’s trading volume ran below the 50 dma all week with the exception of Wednesday. NASDAQ remains well below its all-time high of 16,121.
The odds on the street were for no change in the discount rate by the Fed on Wednesday, so the market was essentially wandering sideways until Powell was asked if the rates would be lowered at the next meeting in March. That led to a seventy nine point decline on Wednesday. But something changed the next day as traders made up most of that loss. Then SPX gapped open this morning and just ran strongly into the close.
The lack of a strong increase in VIX on Wednesday’s loss was the clue. The institutions and large funds were not concerned about Powell’s comment and the bulls drove the market higher.
I continue to worry about the relative weakness of the Russell 2000 index. These are the high beta stocks that tend to lead strong bull markets. The weak trading volume on the NASDAQ Composite is another cautionary signal. Trading in the S&P 500 stocks rose this week, but not as much as one would expect in a strong bull market.
I am booking gains in this bull market but I am cautiously watching for signs of a correction. This just seems too good to be true.
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The Standard and Poors 500 index (SPX) closed today at 5006, down 24 points or 0.5%. SPX opened the week at 5027, setting up a weekly loss of 0.4%. Trading volume ran below the 50-day moving average (dma) most of the week; even when the CPI report disappointed the market on Tuesday and SPX took a tumble, trading volume didn’t spike higher. The bulls managed to push the S&P 500 stocks back to Monday’s levels by the end of trading on Thursday. That is an impressive recovery.
VIX, the volatility index for the S&P 500 options, opened the week at 13.5% and closed today at 14.2%. VIX nearly reached 18% on Tuesday but steadily declined the rest of the week to its close today at 14.2%.
I track the Russell 2000 index with the IWM ETF, which closed today at 202, down three points on the day (-1.4%) and up one percent for the week. IWM matched its December high at 205 on Thursday but pulled back a bit today. These are high beta stocks and you can see that with the extreme downward move on Tuesday and then an equally strong move over the next two days.
The NASDAQ Composite index closed today at 15,776, down 131 points or 0.8%. NASDAQ opened the week at 15,980, for a weekly loss of 1.3%. NASDAQ declined significantly on Tuesday and could not recover all of that loss this week. NASDAQ’s trading volume ran below the 50 dma all week with the exception of Thursday. Surprisingly, when the market dropped so far on Tuesday, NASDAQ’s trading volume barely reached the 50 dma.
The strength of this bullish run since early November is a sight to behold. The CPI report on Tuesday morning triggered a strong sell-off, but the immediate bullish response was remarkable. By today’s close, the market had nearly recovered all of Tuesday’s losses. The inconsistency of the strong recovery was average to below average trading volume on both the S&P 500 and the NASDAQ Composite.
VIX nearly hit 18% on Tuesday but it was short-lived. The institutions and large funds have gotten over their disappointment that a reduction in interest rates isn’t imminent.
The relative weakness of the Russell 2000 index continued through the end of January, but even Russell is on board with the bulls. Yesterday’s close in IWM was nearly at the high from 2024. This recovery is a strong endorsement of this bull market.
I find myself thinking that this market has gone too high too fast, but the trading in the Russell 2000 and the rapid recovery after Tuesday’s sell-off has convinced me of the bullish strength underlying this market. I am jumping on board and will make hay while the sun shines - but I am keeping a close lookout for rain clouds.
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The Standard and Poors 500 index (SPX) closed today at 4891, almost unchanged with a decrease of three points or -0.07%. SPX opened the week at 4853, setting up a weekly gain of 0.8%. Trading volume ran at or slightly above the 50-day moving average (dma) this week. Today’s trading volume came in below the 50 day moving average (dma). The S&P 500 index appears to be slowing a bit after strong gains over the past two weeks.
VIX, the volatility index for the S&P 500 options, closed today at 13.3%. VIX opened the week at 13.8%, declined to a low on Wednesday of 12.4% and rose over the last three trading sessions. The slight rise over the last few days probably reflects some concern that this bullish run is slowing.
I track the Russell 2000 index with the IWM ETF, which closed today at 196, unchanged for the day and up less than one percent for the week. This is a much weaker chart than SPX or NASDAQ. IWM remains four percent below its December high at 205. These are the high beta stocks that should be leading a true “risk on” bullish run.
The NASDAQ Composite index closed today at 15,455, down 55 points or -0.4%. NASDAQ opened the week at 15,393, setting up a slight weekly gain of 0.4%. NASDAQ’s trading volume was slightly above the 50 dma on Monday and ran below that average the rest of the week. NASDAQ remains well below its all-time high of 16,121.
Traders appear to have finally accepted that the Fed will not be reducing interest rates at this coming meeting January 30-31. The trading action after the FOMC announcement on 1/31 may be volatile.
The S&P 500 continues to set new all-time highs, but NASDAQ remains about four percent below its all-time high. And the Russell 2000, as measured by IWM, remains over four percent below its high from December.
The relative weakness of the Russell 2000 index is a significant cautionary signal; these are the high beta stocks that tend to lead strong bull markets.
The weak trading volume on both the S&P 500 and the NASDAQ Composite is another cautionary signal.
A less quantitative concern is the frequency of significant market corrections in the markets after an extremely strong run higher. In fact, that is why we use the term, correction. The idea is that the market went too high, too quickly. It is helpful to remind ourselves that the S&P 500 has not only set a new all-time high; this index has also risen 19% in only three months.
Don’t misunderstand. I am not sitting on the sidelines touting the coming crash. I am playing this market, but I am cautious and very particular in evaluating the opportunities.
