The Breakdown Expanding Underneath the Stock Market – The Market Breadth

Stock Market Commentary

The S&P 500 (SPY) lost 0.7% for just its 4th down day of the 12 trading days of August. The index closed at an all-time high the previous day. The pullback looks like just one more tiny pinprick in the middle of a monster run-up during this pandemic. Yet the ongoing deterioration in market breadth that has mattered for mere days all year is tugging more and more at the underbelly of the market. The breakdown expanding underneath the stock market worsened enough last week to push me out of my short-term bullish trading call. Today, the percentage of stocks trading above their respective 200-day moving averages (DMAs) fell to a fresh 9-month low. November’s breakout officially ended.

The Stock Market Indices

The S&P 500 (SPY) bounced off 20DMA support (the dotted line below) to lower its loss on the day to 0.7%. The index’s uptrend remains well intact.

The S&P 500 (SPY) gained 0.9% and stretched for an all-time high.
The S&P 500 (SPY) fell 0.7% off its all-time high.

The NASDAQ (COMPQX) lost its 20DMA uptrend with a 0.9% loss. The tech-laden index almost touched its 50DMA support (the red line below) before rebounding.

The NASDAQ (COMPQX) gained 0.7% to end a week the strung together a series of all-time highs.
The NASDAQ (COMPQX) lost 0.9% and bounced away from its 50DMA.


The iShares Trust Russell 2000 Index ETF (IWM) nearly touched 200DMA support (the blue line below) before rebounding to preserve a 1.2% loss. This support for IWM was last breached 11 months ago. As a flyer, I like buying call options here for a rebound back to or through 50DMA resistance by the end of next week. A close below 200DMA support would, of course, be consistent with the theme of a breakdown expanding underneath the stock market.

The iShares Trust Russell 2000 Index ETF (IWM) lost 1.2% but bounced away from its 200DMA support.

Stock Market Volatility

The volatility index (VIX) jumped today but once again failed around the 20 level. Faders went to work and drove the VIX back to an 11.1% gain. Accordingly, the fade could indicate sellers in the S&P 500 are already exhausted. Yet, a continued pullback in the VIX does not change the larger dynamics of the breakdown expanding underneath the stock market.

The volatility index (VIX) continues to cling to the 20 threshold.
The volatility index (VIX) gained 11.1% but fell away sharply from the 20 level.

The Short-Term Trading Call with A Breakdown Expanding Underneath the Stock Market

  • AT50 (MMFI) = 36.9% of stocks are trading above their respective 50-day moving averages
  • AT200 (MMTH) = 55.5% of stocks are trading above their respective 200-day moving averages
  • Short-term Trading Call: neutral

AT50 (MMFI), the percentage of stocks trading above their respective 50DMAs, dropped to 36.9%. My (new) favorite technical indicator is back in the range where trading conditions get “close enough” to oversold for considering aggressive buying opportunities. Yet, I find myself uninterested in trying out such trades. I even see more bearish trading opportunities wherever I look (buying setups described in this post notwithstanding).

AT200 (MMTH), the percentage of stocks trading above their respective 200DMAs, is ruining my mood. The indicator of longer-term health dropped to a fresh 9-month low. AT200’s breakout from November officially came to a complete and resounding end. Sure, AT200 may now look over-extended, but I fully expect any subsequent rebounds to lack momentum or buying enthusiasm. As a result, I remain firmly neutral on the stock market. I do not like what I see with AT200 screaming about the breakdown underneath the stock market.

Percentage of stocks trading above their respective 50-day moving averages (DMAs) according to TradingView.com (MMFI)
Percentage of stocks trading above their respective 200-day moving averages (DMAs) according to TradingView.com (MMTH)

Stock Chart Reviews – Below the 50DMA

Caterpillar, Inc (CAT)

Caterpillar, Inc (CAT) lost its leadership position from last week’s rebound. After 4 straight days of selling, CAT tapped 20DMA support before closing just below its 50DMA. I bought a weekly calendar call spread the previous day as a play for a bounce off 50DMA support.

Caterpillar, Inc. (CAT) lost 2.0% and cracked through 50DMA support.

Yelp Inc (YELP)

Earnings sent Yelp Inc (YELP) into a test of its post-pandemic high set in March. Sellers stepped in from there and finished a complete reversal yesterday. Now, YELP is clinging to 200DMA support and the lows of a 6-month trading range.

After a complete reversal of post-earnings gains, Yelp, Inc. (YELP) lost 3.1% and cracked 200DMA support.

Match Group, Inc (MTCH)

I have eyed Match Group, Inc (MTCH) for a fresh buying opportunity since I under-estimated the potential for the rebound off 200DMA support (the blue line below). After selling off all month from a post-earnings disappointment, MTCH is back to the bottom of its 9-month trading range. I am a buyer after a close above today’s intraday high of $134.

Match Group, Inc (MTCH) has sold off almost every day since reporting earnings at the beginning of August. The stock closed at the bottom of a trading range that started 9 months ago.

Peloton Interactive (PTON)

On a day of expanding breakdowns and general selling, someone decided it was a good time to load up on Peloton Interactive (PTON). PTON jumped 3.0% on what looks to me like a purely technical move: buyers defended the July lows. Overhead resistance looks ominous.

Peloton Interactive (PTON) jumped 3.0% off the support of July lows.

The Walt Disney Company (DIS)

The Walt Disney Company (DIS) is back in fade mode. Sellers stepped right into DIS’s post-earnings gap up last week. They have barely slowed down since. DIS broke through 50DMA support and tested 200DMA support. I was interested in buying on firm 50DMA support. Now I am back to watching.

The Walt Disney Company (DIS) quickly erased its post-earnings gain and today lost another 1.8% on a test of 200DMA support.

Stock Chart Reviews – Above the 50DMA

Cross Country Healthcare (CCRN)

I laid out the case for buying Cross Country Healthcare, Inc (CCRN) in my last Market Breadth post. On Monday, I watched as CCRN dove straight for 20DMA support. Before I could even think about setting up a first buy, the stock seemed to pop instantly to an 8.2% gain. Now I can only hope for one more pullback to buy.

Cross Country Healthcare, Inc (CCRN) jumped off 20DMA support and gained 8.2%. Momentum stopped cold today.

Be careful out there!

Footnotes

“Above the 50” (AT50) uses the percentage of stocks trading above their respective 50-day moving averages (DMAs) to measure breadth in the stock market. Breadth defines the distribution of participation in a rally or sell-off. As a result, AT50 identifies extremes in market sentiment that are likely to reverse. Above the 50 is my alternative name for “MMFI” which is a symbol TradingView.com and other chart vendors use for this breadth indicator. Learn more about AT50 on my Market Breadth Resource Page. AT200, or MMTH, measures the percentage of stocks trading above their respective 200DMAs.

Active AT50 (MMFI) periods: Day #338 over 21%, Day #21 over 31% (overperiod), Day #1 under 41% (underperiod), Day #32 under 51%, Day #44 under 62%, Day #108 under 72%

Source for charts unless otherwise noted: TradingView.com

Grammar checked by Grammar Coach from Thesaurus.com

Full disclosure: long UVXY 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.

2 thoughts on “The Breakdown Expanding Underneath the Stock Market – The Market Breadth

  1. This is incredibly well thought out with specific targets which is really helpful. I can feel each day the market getting heavier. So I’ll keep an eye on those stocks that you’ve made great charts / comments on.))

  2. This is incredibly well thought out with specific targets which is really helpful. I can feel each day the market getting heavier. So I’ll keep an eye on those stocks that you’ve made great charts / comments on.))

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