When the Standard and Poors 500 Index (S&P 500) gapped open lower and plunged on May 17th, traders panicked, but the bulls came back strongly the very next day and drove the market to new highs within several days, culminating in another all-time high at $2454 this past Monday. S&P 500 traded weakly lower this week, opening Monday at $2443 and closing Friday at $2438. Most of this week’s trading was negative, but Friday was a moderately positive day. I find it interesting that trading volume spiked Friday. Last Friday’s trading volume spike was typical of options expiration. Yesterday’s spike suggested strong bullish support. The bulls are still in control.
The Russell 2000 Index (RUT) price chart stands in contrast to the almost perfectly bullish S&P 500 price chart for the past six months. RUT has largely traded within a sideways channel since December. This is the most bearish indicator we currently have on this market. RUT opened the week at $1407 and closed yesterday at $1415. Last week’s spike higher to $1427 was short-lived. Russell’s position lagging the market indices may be contrasted with the NASDAQ Composite, which has been extremely bullish since mid-April. And this week’s trading continued that pattern as NASDAQ opened the week at $6197 and closed yesterday at $6265. The Goldman Sachs (NYSE:GS) memo on June 9th took the wind out of NASDAQ’s sails by criticizing the high stock prices of many of the high tech market darlings: Alphabet Inc Class A (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB), Amazon.com Inc (NASDAQ:AMZN), Netflix Inc (NASDAQ:NFLX) and others. NASDAQ opened June 9th at $6330 and is still struggling to get back to those levels.
NASDAQ’s trading volume spiked higher on Friday, just as we saw in S&P 500. It is interesting to note that trading volume yesterday exceeded the trading volume spike on June 9th as NASDAQ sold off.
Market volatility remains at historical lows, as measured by the VIX, closing at 10.0% on Friday.
Many market gurus are proclaiming an overbought market, but the bulls are strongly defending any attempts to push the market lower. You saw evidence of that bullish support in the trading volume spikes Friday on an otherwise modestly bullish day. If one watches any of the political commentary on cable TV, you would conclude that the country is on the verge of collapse. Yet this bull market just continues higher. Political intrigue, terrorist incidents and even crazies like Kim Jong Un don’t phase this market. But this is a nervous bull market. Consider the market sell-offs of March 31st, May 17th and June 9th. All were triggered by events that didn’t seem very significant. But all of these pull backs were immediately bought by the bulls, and the market went on to set new highs in each case. Investors really don’t have a choice. We have to continue to trade this bullish trend. But it remains a nervous market. This is no time for complacency. Watch your positions carefully. Keep your stops tight.