AT40 = 64.0% of stocks are trading above their respective 40-day moving averages (DMAs) – ended a 1-day overbought period
AT200 = 62.7% of stocks are trading above their respective 200DMAs
VIX = 11.7
Short-term Trading Call: bullish
Commentary
It figures that just one day after the stock market finally crossed into overbought territory, it dropped right back out in dramatic fashion.
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), dropped from 70.01% to 64.0%. Before the S&P 500 (SPY) closed with a loss it rallied to a new intraday high in what seemed like another powerful follow-through of bullish sentiment. Instead, the index lost 0.4%. Once again, I found little use for the mainstream financial press’s search for explanations; even the hand-wringing over what was apparently the largest one-day reversal in almost a year rang hollow to me. For example, the S&P 500 did not even close below the low of the previous trading day. The index bounced slightly off that point of support. Once that low gives out, THEN I will start wondering about whether the index can crack the threshold that flips me to bearish. Ditto on the NASDAQ and the PowerShares QQQ ETF (QQQ).
Small-caps suffered much greater damage. The iShares Russell 2000 ETF (IWM) closed below the low of the previous trading day and created a bearish engulfing pattern. The selling did not end until IWM tapped the bottom of its uptrending upper-Bollinger Band (BB) channel.
The U.S. dollar index (USD) also suffered a big move. The index extended a major breakout and finished the reversal of three years of gains. A bulk of the pounding is coming from the continuing resurgence of the euro. Last week, speculators increased net long contracts on the euro to levels not seen since at least 2008 – what I call “full bull.”
Source: StockCharts.com
In my last Above the 40 post, I noted how the volatility index, the VIX, looked like it was poised for a spike. Accordingly, I maintained a position in call options on ProShares Ultra VIX Short-Term Futures (UVXY). The VIX finally spiked and the typical volatility faders were not able to reverse all the day’s gains. I decided to hold onto my call options for at least one more day just in case the upward momentum is truly not finished quite yet.
STOCK CHART REVIEWS
SPDR Gold Shares (GLD)
GLD is benefiting from the dollar’s weakness. Speculators are also back on board with net long contracts increasing every week for the last 4 weeks. Positions are reaching back to where they were when GLD last peaked in early September, 2017.
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“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.
Active AT40 (T2108) periods: Day #475 over 20%, Day #289 over 30%, Day #89 over 40%, Day #37 over 50%, Day #28 over 60%, Day #1 under 70% (ending 1 day over 70%)
Daily AT40 (T2108)
Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)
Weekly AT40 (T2108)
*All charts created using freestockcharts.com unless otherwise stated
The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.
Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.
Be careful out there!
Full disclosure: long UVXY calls, long GLD, long and short currency pairs with the U.S. dollar
*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies. Stock prices are not adjusted for dividends.