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The Standard and Poors 500 index (SPX) closed today at 4320, down ten points on the day or -0.2%. SPX opened the week at 4445 for a weekly loss of 2.8%. SPX broke down through its 50-day moving average (dma) last week and fell farther this week, leaving the index about midway between the 50 dma and the 200 dma. Trading volume remains well below average.
VIX, the volatility index for the S&P 500 options, closed today at 17.2%, down slightly from yesterday’s 17.5%. VIX remains below the volatility spike around 18-19% during the mid-August correction, even though SPX broke those
mid-August lows yesterday.
I track the Russell 2000 index with the IWM ETF, which closed today at 177, down about one half of one point or -0.2%. IWM opened the week at 184 for a loss of 3.6% for the week. IWM broke down through its 50 dma two weeks ago and broke down through its 200 dma early this week. IWM is now more than halfway down from its 7/31 high to its low of 2022.
The NASDAQ Composite index closed today at 13,212, down 12 points or
-0.09% today, and losing 3.4% for the week. NASDAQ broke down through its
50 dma last week but is now closing the gap to its 200 dma. NASDAQ found support today at its high from 2022.
The broad market context for the past several weeks isn’t pretty. It would be easy to be concerned that we are setting up for a more serious market correction and October is an infamous month for ugly corrections. As one might expect, Wall Street doomsday gurus are on every financial network. All three broad market indices have posted weekly losses over three consecutive weeks and are consistently below their 50-day averages. The worst chart belongs to Russell, which broke down through its 200 dma this week.
Conventional wisdom expected the FOMC to pause its rate hikes this month and I expected the market to react positively when it did pause. Instead, the market took significant steps lower. The relatively low levels of trading volume provide the only glimmer of hope.
This is a good time to be in cash.
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The Standard and Poors 500 index (SPX) closed today at 4450, losing 55 points on the day or 1.2%. SPX opened the week at 4481 for a weekly loss of 0.7%. SPX managed to break out above the 50-day moving average (dma) yesterday but gave that up decisively today, closing at 4450, 33 points below the 50 dma at 4483. Trading volume spiked today due to the simultaneous expiration of stock options, index options, and stock index futures. This occurs quarterly on the third Friday of March, June, September and December, and is sometimes still referred to as quadruple witching even though single stock futures are no longer traded.
VIX, the volatility index for the S&P 500 options, declined steadily this week, closing yesterday at 12.8%. VIX appeared to continue that trend this morning, opening at 12.7%, but then it spiked to 14.2% before settling at 13.8% at the close.
I track the Russell 2000 index with the IWM ETF, which closed today at 184, down two points or 1.1%. IWM opened the week at 185 for a loss of 0.5% for the week. IWM touched its 200 dma on Wednesday and today's low was very close the that support level. I follow the Russell 2000 because these high beta stocks are effectively the canaries in the coal mine. They haven't fallen off their perches, but they are twitching.
The NASDAQ Composite index closed today at 13,708, losing 218 points or 1.6% today, and also losing 1.3% for the week. NASDAQ recovered its 50 dma at 13,881 yesterday but today’s close broke well below the 50 dma and came close to the low of 13,749 set on Thursday of last week. NASDAQ’s trading volume spiked today due to triple witching.
The broad market hit highs toward the end of July, but then gave all of those gains back by the third week of August. Then it struggled to recover to a lower high by the first of September, then fell again to a low on 9/8 and today’s close was very close to that low last week. We were all taught the basics of defining a trend: a bullish series of higher highs and higher lows or a bearish series of lower highs and lower lows. The picture isn’t perfectly bearish, but it isn’t pretty.
The S&P 500, NASDAQ Composite and the Russell 2000 have all posted weekly losses both of the last two weeks and are consistently below their 50-day averages. The worst chart belongs to Russell, struggling to remain above its 200-day average. Note the small lower shadows on today’s candlesticks in SPX and NASDAQ. There aren’t many buyers willing to buy those lows of the day. Traders may be waiting on the FOMC announcement next week, but the mood is dark.
Note the CPI and PPI reports from earlier this week. Inflation appears to rising again. The FOMC is being squeezed. A rising inflation rate may dictate another hike in the discount rate. But higher interest rates are hurting banks as prices of low interest treasury bonds on their balance sheets are declining. Another rate hike may push some of the smaller regional banks over the edge. The Fed is caught in a classic dilemma.
It is only prudent to limit our exposure to this market.
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The Standard and Poors 500 index (SPX) closed today at 4516, up 8 points on the day or +0.2%. SPX opened the week at 4426 for a weekly gain of 2%. All in all, it was a positive week, but trading volume dropped back below the 50-day moving average.
VIX, the volatility index for the S&P 500 options, continued its track lower all week, opening at 16.2% and closing today at 13.1%. It was unusual to see VIX track lower yesterday as the market fell, but apparently the large institutions were confident in this market. I can’t say I agree.
I track the Russell 2000 index with the IWM ETF, which closed up a little over two points at 191 and posted a 3.8% gain on the week. IWM solidly broke through its 50 dma today, although it did pull back a bit late in the day.
The NASDAQ Composite index closed today at 14,032, down 3 points or essentially unchanged on the day. NASDAQ opened the week at 13,695, resulting in a strong weekly gain of +2.5%. NASDAQ solidly broke out above its 50 dma this week and is approaching its July high around 14,400. NASDAQ’s trading volume remains below its 50 dma.
The trader’s most basic tactic is determining the trend of a stock or an index and then playing his prediction. But this market has been entirely too volatile for that approach. We had some nice gains in July, only to give it all back as we entered August, and now the market appears to be trying for a comeback run.
Perhaps this volatility will be the order of business until the FOMC meeting and announcement later this month. I remain very tentative and unwilling to devote much capital to this market. I recommend a cautious stance.
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The Standard and Poors 500 index (SPX) closed today at 4457, up 6 points on the day or +0.1%. SPX opened the week at 4510 for a weekly loss of 1.2%. Trading volume remains below average, suggesting a relative lack of enthusiasm from the bulls or the bears.
VIX, the volatility index for the S&P 500 options, played see-saw this week, opening the week at 14.1%, increasing to 15.7% mid-week and closing today at 13.8%.
I track the Russell 2000 index with the IWM ETF, which closed today at 183.9, down 0.4 points, but posted a 3.1% loss for the week. IWM declined every day this week and even gapped open lower on Thursday. I follow the Russell 2000 because these high beta stocks tend to show the overall market’s trend. These are the stocks the institutions tend to sell when they sense danger.
The NASDAQ Composite index closed today at 13,762, up 13 points, but lost 1.7% for the week. NASDAQ solidly broke down through its 50 dma on Thursday. NASDAQ’s trading volume remains below average, declining steadily all week.
The market posted strong gains for May through the end of July, and then gave back about half of those gains through mid-August, when it tried to recover and made it to a high last Friday before declining all of this shortened holiday week.
This week's trading wasn’t a pretty picture. Today’s trading on both the S&P 500 index and the NASDAQ index included a strong bullish run to a higher price that the bulls couldn’t hold, with the bears coming in to sell, and closing near the opening price for the day.
The S&P 500 lost 1.2% this week, NASDAQ lost 1.7% and the Russell 2000 lost 3.1%. All of these indices have now broken through their 50 day moving averages.
I remain largely in cash. I will feel better when we get September and October behind us.
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The Standard and Poors 500 index (SPX) closed Friday at 4370, with a small decline of less than one point. However, this culminates a steady decline of 4.8% since the high on July 31st. Trading volume continues to run well below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, opened the week at 15.9% and closed yesterday at 17.3% after an intraday spike to 18.9%. VIX has appeared to be lower than one might expect after the steady decline in the S&P 500 index over the last two weeks. Are all the large players already hedged?
I track the Russell 2000 index with the IWM ETF. IWM closed up Friday, closing at 196.9 after finding support at the 200 dma. However, IWM has booked a significant loss of 6.2% since its high on 7/31. The Russell 2000 stocks are leading the market lower – not a good sign.
The NASDAQ Composite index closed Friday at 13,291, down 26 points for a 0.2% loss. NASDAQ wins the race to the bottom, now down 7.4% since its recent high at 14,358 on 7/19.
IBD moved their market assessment from Uptrend Under Pressure to Market in Correction on Thursday. VestorVest’s market analysis is now Bearish and they recommend not buying any stocks at this time.
Fitch’s downgrade of U.S. debt about two weeks ago continues to haunt the markets, as does the concern about future bank failures. PacWest (PACW) is one of many banks that has experienced significant withdrawals of deposits and is rumored to be on the brink of failure.
All of the broad market indices are down significantly:
The S&P 500 is down 4.8% since its high July 31
The NASDAQ Composite is down 7.4% since its high July 19
The Russell 2000 is down 6.2% since its high July 31
This could be a comparably minor market correction, but the underlying U.S. economy is not healthy. Our level of debt has reached record levels; the cost of servicing that debt is growing rapidly with rising interest rates. Unfortunately, our politicians are turning a blind eye to our fiscal problems. It is hard to imagine how this situation may be sustainable. The public’s focus has been on the effect of rising interest rates on their personal debt and our government’s debt situation is completely analogous. The path out of this situation may be quite painful.
I have closed all of my positions except some Jan 2024 covered calls on blue chip, dividend paying stocks and long term OTM iron condors on the S&P 500 index. I am watching this market very carefully. I fear we have not yet seen the bottom.
