AT40 = 49.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 50.1% of stocks are trading above their respective 200DMAs
VIX = 15.8
Short-term Trading Call: bullish
Another proclamation on monetary policy from the Federal Reserve is just 3 trading days away. Hanging in the balance is the S&P 500 (SPY) as it precariously clings to support at its 50-day moving average (DMA). The NASDAQ and the PowerShares QQQ ETF (QQQ) are barely clinging to the bottom of their respective uptrend channels defined by their upper-Bollinger Bands (BBs).
With the iShares Russell 2000 ETF (IWM) gaining 0.5% on Friday, my favorite technical indicator, AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, reversed most of its loss for the week. At 49%, AT40 is just under the 50.5% it achieved when the NASDAQ and QQQ made new all-time highs, and the S&P 500 broke out convincingly above its 50DMA resistance. At that time, I thought the stock market had returned to its “originally scheduled programming.” Instead, the channel switched right away.
Surprisingly, the volatility index, the VIX, is not reflecting an increase in anxiety even though the major indices performed poorly through most of the week. The 15.35 pivot acted as a powerful gravitational force. If the Federal Reserve works its calming magic this week, the VIX should even plunge below the pivot. I will be looking to add to my latest volatility fade on any increase in the VIX going into the Fed meeting.
I kept my short-term trading call at bullish given the S&P 500 is clinging to 50DMA support and AT40 ended the week on a strong note. However, the Australian dollar (FXA) and the Japanese yen (FXY) continue to distract my confidence. I covered my short position on AUD/JPY into Friday’s selling (as well as a short on AUD/USD). At the time of writing, I re-established my short position as the currency pair continued its decline right to the edge of support formed by the April, 2017 intraday low. I assume a breakdown below this level has bearish implications for financial markets in general.
LOGI is one of those stocks I never should have sold. Last year, LOGI briefly made a new all-time high that beat out the former all-time high set in 2007. The stock finally made a new all-time high after its January earnings report. That gap up closed with the February sell-off. I wish I noticed the pullback then. I DID take note of the latest pullback that has found support the entire month of March at a steeply rising 50DMA. I bought shares on Friday and plan to accumulate down to 200DMA support if the market offers up the discount.
McDonalds Corp (MCD)
MCD was an example of a call gone right and a trade gone wrong. Two weeks ago, I sat astounded at the plunge in MCD and was eager to load up the truck with the stock. I wanted to stay patient, but the very next day the stock ran up on strong buying volume. Despite the strong showing, I anticipated a slow and churning recovery. So I bought a calendar spread at the $155 strike with the short side expiring March 16th and the long side expiring on April 20th. I targeted $155 as the top of the gap down. I figured MCD would be lucky to close the gap in two weeks. Investors had other ideas: MCD simply kept marching higher every single day until on Friday it reached 200DMA resistance. It was an incredible leap. I decided to close out the entire position at a small loss. I basically got too cute with my bullishness on the stock!
Other trades related to previous posts past 2 trading days: DKS shares called away, bought QCOM shares and calls, bought LOGI shares, bought X calls, bought M calls. expired worthless: QQQ calls, DPZ calls and puts!, TOL calls, TLT calls, SNAP covered call
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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 #21 over 20%, Day #10 over 30%, Day #6 over 40% (overperiod), Day #4 under 50%, Day #29 under 60%, Day #35 under 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.
The AT40 (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!
Additional disclosure: long SPY shares and calls, long LOGI, short VXX, long QQQ calls and puts
*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies. Stock prices are not adjusted for dividends.