Above the 40 (November 23, 2018) – Stock Market Barely Avoids Oversold Conditions

AT40 = 27.6% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 25.6% of stocks are trading above their respective 200DMAs (just above a 32-month low)
VIX = 21.5
Short-term Trading Call: neutral

Commentary
Last week on November 20th, AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), dropped close to oversold conditions. At the same time, AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, dropped to a new 32-month low. With a whole host of poor reactions to company earnings reports, the stock market looked like it was barely holding on.


via GIPHY

The damage in the breadth indicators took a pause after that day. Over two days, AT40 crawled its way from 23.4% to 27.6%. AT200 increased from 24.7% to 26.4% the next day only to end the week at 25.6%. The struggles of the buyers showed up clearly in the major indices, a small divergence with AT40 that set up a very mild bullish divergence (“very mild” meaning I do not take comfort in the move).

The S&P 500 (SPY) lost 0.7% to close near a new 7-month closing low. The NASDAQ lost 0.5% but avoided a new multi-month low. The Invesco QQQ Trust (QQQ) ended the week even with its near 7-month closing low as it lost 0.7%.


The S&P 500 (SPY) tried and failed to close its gap down and fell lower through its lower Bollinger Band (BB) channel.
The S&P 500 (SPY) tried and failed to close its gap down and fell lower through its lower Bollinger Band (BB) channel.

The NASDAQ is also falling lower through its lower-BB channel.
The NASDAQ is also falling lower through its lower-BB channel.

The Invesco QQQ Trust (QQQ) faded sharply from its intraday high to close even with its closing low of the week.
The Invesco QQQ Trust (QQQ) faded sharply from its intraday high to close even with its closing low of the week.

The volatility index, the VIX, ended the week off its recent high but is still at an elevated level (above 20).


The volatility index, the VIX, rushed higher to start the week and closed the week above 20, at an elevated level.
The volatility index, the VIX, rushed higher to start the week and closed the week above 20, at an elevated level.

The stock market is still in desperate need of positive catalysts to break out of this cycle of selling (could the G20 deliver a Hail Mary save?). While another bullish divergence emerged, I am keeping the short-term trading call at neutral. I downgraded all the way from bullish to neutral a little over two weeks ago because of the 200DMA breakdown for the S&P 500. The trading last week further validated that change. I am still looking for the market to drop into oversold territory to start a fresh bottoming process.

CHART REVIEWS

Alcoa (AA)
I accumulated AA earlier this year as a small play to try to ride U.S. tariffs designed to protect American aluminum and steel producers. If those tariffs are helping, I hate to consider how much WORSE off these companies would be without the props. AA experienced a fresh breakdown in October and now trades at a 17-month low.


Alcoa (AA) trades at a 17-month low as part of a 7-month downtrend from its 10-year high.
Alcoa (AA) trades at a 17-month low as part of a 7-month downtrend from its 10-year high.

Apple (AAPL)
AAPL still acts like an anchor around the market’s neck. Bad news about iPhone production keeps coming, and the sellers keep selling. With the extended 200DMA breakdown, AAPL looks like it just printed a major top. The August breakout is a distant memory. Tim Cook and company better put that major buyback plan into hyperdrive.


Apple (AAPL) continues to fall from its tree with a near 7-month low. More importantly, AAPL has not traded this far below its 200DMA since its near 1-year downtrend from mid-2015 to mid-2016.
Apple (AAPL) continues to fall from its tree with a near 7-month low. More importantly, AAPL has not traded this far below its 200DMA since its near 1-year downtrend from mid-2015 to mid-2016.

Amazon.com (AMZN)
AMZN is following a steep downtrend off its last high. The pressure remains on the stock despite a sharp and impressive rebound from a huge gap down early in the week. AMZN sagged to end the week.


Amazon.com (AMZN) (re)confirmed its 200DMA breakdown with a 7-month closing low.
Amazon.com (AMZN) (re)confirmed its 200DMA breakdown with a 7-month closing low.

Autozone (AZO)
Auto parts stores are trying to hold the banner for retailers. AZO is fractionally off its all-time high.


Autozone (AZO) managed to print a new all-time high last week and already looks ready to continue higher.
Autozone (AZO) managed to print a new all-time high last week and already looks ready to continue higher.

O’Reilly Automotive, Inc. (ORLY)
ORLY is helping AZO carry the banner for retail. However, This auto parts retailer may have stalled out below its all-time high.


O'Reilly Automotive, Inc. (ORLY) briefly broke out to another all-time high. Support at the 50DMA is holding so far.
O’Reilly Automotive, Inc. (ORLY) briefly broke out to another all-time high. Support at the 50DMA is holding so far.

Best Buy (BBY)
BBY initially gapped down post-earnings, but buyers quickly rushed in. Sellers took over again the next day and left BBY stuck in a downward push through its lower Bollinger Band (BB) channel.


Buyers picked Best Buy (BBY) off its post-earnings intraday low, but they are struggling to make any further progress.
Buyers picked Best Buy (BBY) off its post-earnings intraday low, but they are struggling to make any further progress.

BHP Group (BHP)
BHP gapped down for a 4.0% loss. Overall, BHP is holding up pretty well given the recent sell-offs in commodities. The stock is still holding its recent trading range.


BHP Group (BHP) fell sharply but remains comfortably contained within a its 2018 trading range.
BHP Group (BHP) fell sharply but remains comfortably contained within a its 2018 trading range.

Rio Tinto (RIO)
Like BHP, RIO is doing relatively well considering the current sell-off in commodity prices. Iron ore in particular has tumbled nearly straight down for a week after hitting a topping pattern. I took profits on my put options that were part of the long BHP vs short RIO pairs trade. Ironically, I chose to lean net bullish this round. The BHP calls are very deflated…


Rio Tinto (RIO) gapped down 4.4% to close near the bottom of its 4-month trading range.
Rio Tinto (RIO) gapped down 4.4% to close near the bottom of its 4-month trading range.

With the latest price plunge, iron ore confirmed another topping pattern. The last top fell short of the double-top that started 2018.
With the latest price plunge, iron ore confirmed another topping pattern. The last top fell short of the double-top that started 2018.

Source: Business Insider Australia

Facebook (FB)
FB is a very broken stock at this point. The relentless selling only took a brief break after the October earnings report.


Facebook (FB) now appears to be on a mission to wipe out all its 2017 gains. The downtrended steepened with the stock hugging its lower Bollinger Band (BB).
Facebook (FB) now appears to be on a mission to wipe out all its 2017 gains. The downtrended steepened with the stock hugging its lower Bollinger Band (BB).

Alphabet (GOOG)
GOOG’s downtrending 20DMA is keeping a tight lid on the stock, but GOOG is faring better than other big cap tech stocks. GOOG is holding a trading range in place for the past month or so.


Alphabet (GOOG) trades near its 7-month closing low, but the stock has really just churned widely for the past month.
Alphabet (GOOG) trades near its 7-month closing low, but the stock has really just churned widely for the past month.

Goldman Sachs (GS)
GS is down 7 of the last 10 trading days. With a 2-year low in place, the GS sell-off looks ever more alarming.


Goldman Sachs (GS) hit a 2-year low with a 2-week decline of 18.4%.
Goldman Sachs (GS) hit a 2-year low with a 2-week decline of 18.4%.

iShares US Home Construction ETF (ITB)
The news for home builders is now undeniably bad. In a classic contrarian move, the buyers are finally stepping into the stocks of builders. All these stocks need now is a more friendly Federal Reserve…something I am guessing buyers are trying to anticipate.


The iShares US Home Construction ETF (ITB) managed to gain 2.1% for the week in a display of out-performance that is starting to look like a sustainable bottom.
The iShares US Home Construction ETF (ITB) managed to gain 2.1% for the week in a display of out-performance that is starting to look like a sustainable bottom.

Kohl’s Corporation (KSS)
Welcome to the top in retailers, KSS…


Kohl's Corporation (KSS) fell victim to the sell-off in big box retailers. The stock gapped down in a post-earnings 200DMA breakdown. The selling resumed on Friday with a fresh 6-month low.
Kohl’s Corporation (KSS) fell victim to the sell-off in big box retailers. The stock gapped down in a post-earnings 200DMA breakdown. The selling resumed on Friday with a fresh 6-month low.

Logitech (LOGI)
I expected LOGI to hold its post-earnings low. Last week blew through that hope.


Logitech (LOGI) slid to an 18-month low. The stock is down 35% off its all-time high set just 3 months ago.
Logitech (LOGI) slid to an 18-month low. The stock is down 35% off its all-time high set just 3 months ago.

Microsoft (MSFT)
With only 25.6% of stocks trading above their respective 200DMAs, I was surprised to notice MSFT holding its 200DMA support. This levitation is even more impressive given the near relentless selling pressure being suffered by big cap tech stocks. MSFT is at the top of my buying list when the market launches its next rally.


Microsoft (MSFT) is one of the last big-cap tech stocks holding the line at its 200DMA support. The stock cracked $100/share before buyers shot the stock back to 200DMA support.
Microsoft (MSFT) is one of the last big-cap tech stocks holding the line at its 200DMA support. The stock cracked $100/share before buyers shot the stock back to 200DMA support.

Netflix (NFLX)
The sellers in NFLX returned very quickly after the big rebound. NFLX closed at a 21-month low. I continue to like fading rallies in NFLX.


Netflix (NFLX) is on an extended losing streak. It ended the week at a 21-month closing low.
Netflix (NFLX) is on an extended losing streak. It ended the week at a 21-month closing low.

Sonos (SONO)
SONO had a tremendous post-earnings response, but sellers quickly descended upon the stock. In four more trading days, the gap and crap almost became a new all-time low for this recent IPO. I was one of the post-earnings sellers as I was grateful to have those profits. I bought SONO right back after buyers seemed to return two days later.


Sonos (SONO) gapped and crapped after earnings. Now the stock is already back to its all-time low.
Sonos (SONO) gapped and crapped after earnings. Now the stock is already back to its all-time low.

Splunk (SPLK)
SPLK turned in an encouraging bounce last week off its intraday low. The buyers held that support. I am not a buyer, however, as earnings are coming up after hours on November 29th. I will be watching closely!


Splunk (SPLK) broke down to a 9-month low before bouncing slightly. The stock's 200DMA has held as resistance since early October.
Splunk (SPLK) broke down to a 9-month low before bouncing slightly. The stock’s 200DMA has held as resistance since early October.

Square (SQ)
SQ looks like it is breaking down. The stock finally gave up its 200DMA support last week. Here is an example of my creeping bearishness. I sold this stock after holding it a long time. The technicals are breaking down, and I want out before a definitive confirmation of the topping pattern. If the sell-off continues I do not see natural support until around $45; that is a price where I would become a very interested buyer. To the upside, a 50MDA breakout would normally get me interested, but this is not a market strong enough to support breakout buys, especially on expensive and/or speculative stocks.


Square (SQ) finally broke down below its 200DMA support. The sharp bounce from an intraday 6-month low positioned the stock for regaining support, but buyers may be tiring.
Square (SQ) finally broke down below its 200DMA support. The sharp bounce from an intraday 6-month low positioned the stock for regaining support, but buyers may be tiring.

Twilio (TWLO)
The rebirth of TWLO has been impressive. Still, even TWLO succumbed to selling pressure last week. TWLO lost its entire 35.4% post-earnings gain at its intraday low last week. With the stock holding its 50DMA, I have it on my buy list in the case of renewed market strength.


Twilio (TWLO) finished reversing its huge post-earnings gains. Can it now hold onto 50DMA support?
Twilio (TWLO) finished reversing its huge post-earnings gains. Can it now hold onto 50DMA support?

United States Oil (USO)
I wanted to buy puts in USO last week, but the price just did not seem right. I should have just shorted the shares. USO plunged again on Friday to the tune of a 6.0% gap down loss. The plunge in oil is accompanying the broad sell-off in commodities in what looks like a bad sign for the health of global growth.


The United States Oil (USO) lost another 6.0% and closed at a 13-month low. The selling since the October peak has been near relentless.
The United States Oil (USO) lost another 6.0% and closed at a 13-month low. The selling since the October peak has been near relentless.

Energy Select Sector SPDR ETF (XLE)
No surprise that XLE is under pressure: XLE is fighting a weakening stock market and a plunge in oil. Friday’s gap down broke important support and plunged XLE into bearish territory.


The Energy Select Sector SPDR ETF (XLE) is closing to test its 2017 low set in August that year. The ETF lost another 3.2% alongside the large loss in the price of oil.
The Energy Select Sector SPDR ETF (XLE) is closing to test its 2017 low set in August that year. The ETF lost another 3.2% alongside the large loss in the price of oil.

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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 #16 over 20%, Day #3 under 30% (underperiod), Day #10 under 40%, Day #44 under 50%, Day #60 under 60%, Day #113 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)
Weekly 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 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!

Full disclosure: long SSO, long UVXY puts, long NFLX put spread, long GOOG calendar put spread, long AMZN calendar put spreads, long QQQ put, long AAPL calls, long AA, long BBY puts, long BHP calls, long FB calls, long ITB calls, long LOGI, long SONO,

*Charting notes: FreeStockCharts.com stock prices are not adjusted for dividends. TradingView.com charts for currencies use Tokyo time as the start of the forex trading day. FreeStockCharts.com currency charts are based on Eastern U.S. time to define the trading day.

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