No Deal for a Confirmation of the Market Breadth Breakout – Above the 40 (June 4, 2021)

Stock Market Commentary

I fully anticipated follow-through to the breakout of market breadth that started trading last week. Instead, trading on the major indices wavered going into a mini pullback on Thursday. As a result, Friday’s rally following the May jobs report failed to generate a confirmation of the market breadth breakout. With job creation falling short of economist “consensus,” the market celebrated the implied lack of pressure for the Fed to even talk about talking about tightening loose monetary policy.

The Stock Market Indices

The S&P 500 (SPY) toe-tapped support at its 20-day moving average (DMA) (the dotted line below) ahead of the jobs report. The subsequent 0.9% gain almost hit the all-time high and looks close enough to confirmation of support. The index is a small breakout away from dealing out a fresh leg to the on-going rally.

The S&P 500 (SPY) gained 0.9% and stretched for an all-time high.
The S&P 500 (SPY) jumped 0.9% and closed just short of an all-time high.

The NASDAQ (COMPQX) did not quite tap 20DMA support ahead of the jobs report, but the tech-laden index did manage to close slightly below 50DMA support. The following 1.5% rally quickly dispersed any threat of a more extended pullback. The NASDAQ is one more day’s gain away from making a run to challenge the index’s long-standing double-top.

The NASDAQ (COMPQX) gained 0.7% to end a week the strung together a series of all-time highs.
The NASDAQ (COMPQX) jumped 1.5% to close the week essentially flat.


The iShares Trust Russell 2000 Index ETF (IWM) lost its momentum last week. The top of the trading range proved to be too great a challenge to overcome.

The iShares Trust Russell 2000 Index ETF (IWM) failed all week to break through the top of its trading range.

Stock Market Volatility

The volatility index (VIX) started the week with a 6.8% gain and did a good job of flagging the wavering trading in the subsequent days. Friday’s stock market rally cut the VIX right at its knees. The 9.0% drop closed the VIX right above the April lows. With no deal for a confirmation of the market breadth breakout, I am inclined to believe that the VIX will once again rebound from these lows.

The volatility index (VIX) continues to cling to the 20 threshold.
The volatility index (VIX) plunged right back to the recent lows.

The Short-Term Trading Call With A Breakout for Market Breadth

  • AT40 (T2108) = 57.1% of stocks are trading above their respective 40-day moving averages
  • AT200 (T2107) = 78.3% of stocks are trading above their respective 200-day moving averages (TradingView’s calculation)
  • Short-term Trading Call: neutral

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed the day at 57.1%, slightly below its close on the day of the market breadth breakout. The lack of follow-through keeps alive the narrative of a stock market with narrowing breadth given the S&P 500 getting close its all-time high was not sufficient for closing the deal. Accordingly, I am looking for more chopping and churning in overall trade until the breakout receives confirmation.

Stock Chart Video Reviews

Stock Chart Reviews – Below the 50DMA

Martin Marietta Materials (MLM)

I reluctantly took profits in my position in Martin Marietta Materials (MLM) on Thursday. I kept a wary eye on MLM after it gapped down below its 20DMA. MLM made a weak attempt to fill the gap before heading straight for 50DMA support (the red line below). I sold when that support first gave way. Friday’s 2.2% drop and 50DMA breakdown on heavy volume looks more serious than the last two 50DMA breakdowns given what I see as broadening weakness in the housing and construction related stocks. I still consider stocks in commodities and materials as top investing/trading options in this market cycle, so I could become a buyer again on a steeper sell-off.

Martin Marietta Materials (MLM) closed below its 50DMA for the first time in 3 months on a 2.2% loss on the day.

Kohls Corporation (KSS)

Retailer Kohls Corporation (KSS) dropped 10.2% post-earnings. I reached for a play on a rebound back to the 50DMA which would preserve the current trading range. My June $60/ July $55 calendar call spread is on the edge of failing for now. A weak intraday rebound on Friday kept the edge of hope alive.

Kohls Corporation (KSS) made a new post-earnings low as the stock struggles to hold support at its March low.

Match Group (MTCH)

I finally jumped into Match Group (MTCH). I have observed several stocks with MTCH’s pattern: clinging to 200DMA support on the low side and pivoting around or close to the 50DMA on the high side. My trade is looking for an eventual breakout. My stop is below $130 which served as support in November, January, and March.

Match Group (MTCH) fights to hold 200DMA support as it churns in a 7-month trading range.

Square (SQ)

Like MTCH, payments and fintech company Square (SQ) is stuck in a 7-month trading range now defined by 50 and 200DMAs. I am not eager to jump into the stock here. Instead, I am keeping an eye for the eventual resolution of this churn to the upside or the downside.

Square (SQ) fights to hold 200DMA support as it churns in a 7-month trading range.

Whirlpool Corporation (WHR)

Whirlpool Corporation (WHR) is a small sign of the weakening trading in housing-related stocks. I bought a put option on what looked like Friday’s confirmation of a 50DMA breakdown. WHR still needs to break below May’s low to truly enter a bearish phase. Such a move would also create a confirmed head and shoulder type of topping pattern. The brief run-up to the all-time high in early May is the head part of the topping pattern.

Whirlpool Corporation (WHR) slid under its 50DMA but held the intraday low from May as support.

Stock Chart Reviews – Above the 50DMA

Celsius Holdings (CELH)

Beverage company Celsius Holdings (CELH) caught my eye from a list of stocks making new all-time highs. I do not think I have ever seen, much less tried, the company’s “calorie-burning fitness” drinks, but the stock says the stuff must be popular. With a valuation of 37 times sales, the drink better have meteoric growth prospects! Just ahead of the pandemic, CELH was on the verge of a breakout above its September, 2017 high. A breakout would have confirmed the end of a long downtrend. CELH sprang right back to life coming out of the March pandemic low. The stock held support around $3.25, a level that held as support since the summer of 2018. CELH joins the ranks of companies that performed a lot better once the pandemic started.

From a technical standpoint, I like last week’s breakout above the former all-time high set in January. The stock is a buy down to that level. I would put a stop below the low of CELH’s 15.0% up day last Wednesday, a high risk, high reward kind of trade.

Celsius Holdings (CELH) gained 6.3% to notch another all-time high.

Churchill Capital Corp IV (CCIV)

In late February, I bitterly complained about the high price of the SPAC Churchill Capital Corp IV (CCIV) that swallowed up Lucid Motors, an electric vehicle car maker I really love. Over the next 3 months, I took advantage of the opportunity to get in at lower (and a bit more reasonable) prices. Last week, CCIV broke out above its downtrending 50DMA. If I did not already own plenty of shares, I would start buying the stock here. A close above the April high would firmly plant CCIV in a bullish position and confirm the end of the downtrend.

Churchill Capital Corp IV (CCIV) confirmed a 50DMA breakout and closed the week at the April highs.

Docusign (DOCU)

Docusign (DOCU) rallied nearly straight up from the March, 2020 pandemic lows before hitting a wall after September earnings. While DOCU soon rebounded with a small upward bias, March’s growth tantrum firmly pulled DOCU back into what is now almost a year-long trading range. Friday’s startling 19.8% post-earnings surge may have changed the tenor of trading. While DOCU may remain stuck in a trading range (it is still valued at a nosebleed 27.1 times sales), DOCU could offer a trade back to at least the February high after some price consolidation around the 200DMA.

Docusign (DOCU) soared 19.8% post-earnings but remains trapped in a near 12-month trading range.

Schlumberger (SLB)

Last week, I pointed to the bullish setup in Schlumberger (SLB). The stock immediately followed through with a 7.7% pop in the wake of raising guidance. SLB is a buy on the dips going forward.

Schlumberger (SLB) confirmed support at its 20DMA and closed the week at a 17-month high.

Zoom Video Communications, Inc. (ZM)

The case remains weak for paying a nosebleed valuation (29.3 times sales) for Zoom Video Communications (ZM) as the coronavirus pandemic ends. The stock went nowhere after reporting earnings and drifted back into its 50DMA. Word that Cathie Wood bought more stock in ZM sent the shares popping 5.3% on Friday. Going forward, ZM is a “simple” trade: buy or stay long above the 50DMA, short below it. I fully expect overhead resistance at the 200DMA to put a solid cap on future rallies in the short-term.

Zoom Video Communications, Inc. (ZM) recovered its post-earnings loss with a 5.3% gain and bounce off 50DMA support.

Be careful out there!

Footnotes

“Above the 40” (AT40) uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to measure breadth in he stock market. Breadth indicates the distribution of participation in a rally or sell-off. As a result, AT40 can identify extremes in market sentiment that are likely to reverse. Above the 40 is my alternative name 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 #146 over 20%, Day #130 above 30%, Day #17 over 40%, Day #8 over 50% (overperiod), Day #40 under 60% (underperiod), Day #59 under 70%

DAILY AT40 (T2108) chart
WEEKLY AT40 (T2108) chart
Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%). Chart always show the latest download date. Source: FreestockCharts
Percentage of stocks trading above their respective 200-day moving averages (DMAs) according to TradingView.com (MMTH)

Source for charts unless otherwise noted: TradingView.com

Grammar checked by Grammar Coach from Thesaurus.com

Full disclosure: long UVXY calls, long SPY puts, long SLB, long CCIV, long WHR put, long MTCH, long KSS calendar call spread

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*Charting notes: Stock prices are not adjusted for dividends. Candlestick charts use hollow bodies: open candles indicate a close higher than the open, filled candles indicate an open higher than the close.

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