The Stock Market Breezed Through August and Strolls Into September – The Market Breadth

Stock Market Commentary

The stock market breezed through August and now strolls into September. The S&P 500 breezed to a 2.9% gain for the month of August, its seventh month in a row of gains. The NASDAQ breezed even higher with a 4.0% gain for August. The stroll into September ignored the disappointment in the August jobs report. The U.S. economy only produced 235,000 new jobs, well below the now monthly average rate of 586,000. While the overall unemployment rate decreased from 5.4% to 5.2%, the unemployment rate for African-Americans jumped from 8.2% to 8.8%. The tinges of bad news surely refreshed memories of Federal Reserve Chair Jerome “J-Pow” Powell promising on-going support for financial markets…and kept the market on a stroll into September.

The Stock Market Indices

The S&P 500 (SPY) opened the week with a 0.4% gain and churned the rest of the week with an ever so slight upward bias. The index breezed through the week adding two more all-time highs to its mounting total for the year.

The S&P 500 (SPY) gained 0.9% and stretched for an all-time high.
The S&P 500 (SPY) churned its way through the week.

The NASDAQ (COMPQX) is standing more upright than the S&P 500 these days. The tech-laden index caught a strong breeze and opened the week with a 0.9% gain, started September with a 0.3% gain, and finally ended the week with a fresh all-time high.

The NASDAQ (COMPQX) gained 0.7% to end a week the strung together a series of all-time highs.
The NASDAQ (COMPQX) churned away the final three days of the week.


The iShares Trust Russell 2000 Index ETF (IWM) played coy by opening the week with a 0.4% loss. IWM breezed three straight days higher from there and gave the impression that it wanted to challenge the top of its 2021 trading range. Instead, the index of small cap companies retreated 0.5% to end the week.

The iShares Trust Russell 2000 Index ETF (IWM) lost 0.5% and shied away from a challenge to the top of the 2021 trading range.

Stock Market Volatility

While the stock market strolled into September, the volatility index (VIX) held its ground. Volatility faders failed to press the issue to the August lows. Now the VIX looks poised for another one of those swift surges higher. The VIX signal is the nagging reason to anticipate some trouble directly ahead.

The volatility index (VIX) continues to cling to the 20 threshold.
The volatility index (VIX) churned away the entire week.

The Short-Term Trading Call After the Stock Market Breezed By the Dangers of August

  • AT50 (MMFI) = 55.8% of stocks are trading above their respective 50-day moving averages
  • AT200 (MMTH) = 57.9% 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, increased one percentage point for the week to 55.8%. The positive implications of this expansion of market breadth were undermined by AT200, the percentage of stocks trading above their respective 200DMAs. This longer-term indicator of market breadth fell almost two percentage points on the week. The gulf between the winners and losers expanded last week. This creeping divergence helps keep me short-term neutral on the stock market.

This divergence combined with the resilience in the VIX could provide the perfect time to warn about the dangerous drawdown history of September and October. However, anecdotally, I see mention of these dangers over and over again. This recent interview in CNBC’s Trading Nation is one of numerous examples:

The drawdown warning from Miller Tabak’s chief market strategist Matt Maley sounds like a familiar theme from much of this year: “There’s a huge amount of froth in the marketplace right now much like we’ve seen in other important tops of the market that only became obvious in hindsight…We have a stock market that’s very, very expensive, and a market that is overbought.” So while I firmly respect seasonal patterns, I also worry here about a potential consensus of worry. I am circumspect enough to maintain a short-term trading call of neutral.

On the other hand, consistent bull Tom Lee co-founder and head of research of Fundstrat Global Advisors is finally calling for a 10% correction….in October…after the S&P 500 hits 4650 in September.

The percentage of stocks trading above their respective 50DMAs (AT50) stalled to end the week but it is still on an uptrend from prior lows.
The percentage of stocks trading above their respective 200DMAs (AT200) remains stalled below 60%.

Stock Chart Video Reviews

Stock Chart Reviews – Below the 50DMA

lululemon athletica inc (LULU)

A double-top warning materialized for lululemon athletica inc (LULU). On August 30th, LULU jumped 2.3% and closed at a new all-time high by less than a point. Sellers promptly rejected the achievement with a 3.5% pullback on heavy selling volume. The selling continued for the rest of the week and created a 50DMA breakdown. Technically, the close below the last important low confirms the double-top. However, given LULU pulled off a bullish engulfing bottom at that low, I will wait for a lower close before officially assuming LULU topped out.

lululemon athletica inc (LULU) sold off the last 4 days and printed a 50DMA breakdown. So far, LULU is holding the August intraday lows.

Five Below (FIVE)

Remember the fidget spinner? Five Below (FIVE) helped popularize the toy under the name “toy spinner.” For 7 full months FIVE spun inside a trading range this year. In August, FIVE breezed through a breakout to all-time highs. Suddenly, just ahead of earnings, sellers aggressively took profits. Post-earnings, FIVE finished reversing the breakout in dramatic fashion with a gap down below 50DMA support and a marginal close below its 200DMA. FIVE last closed below its 200DMA 13 months ago. Buyers showed up next day to defend 200DMA support with a 3.0% pop. A new post-earnings closing low is a signal to go short. I will celebrate with buyers on a fresh close above the 50DMA.

Five Below (FIVE) survived a test a test of 200DMA support following a 13.0% post-earnings plunge.

Nordstrom, Inc. (JWN)

I have long been a fan of finding buying opportunities in Nordstrom, Inc (JWN). After JWN fell 17.6% on extremely high volume, I flipped the script. The very next day JWN gapped down again and closed with an 8.4% loss. I jumped into September put options the next day. JWN closed the week with another 4.6% loss and a 9-month low. The run-up last November provides no firm points of “natural support,” so I suspect JWN is on a greased track to eventually reverse the entire breakout.

Nordstrom, Inc. (JWN) lost 4.6% and closed at a 9-month low as post-earnings selling pressure continues.

Stock Chart Reviews – Above the 50DMA

Academy Sports and Outdoors, Inc (ASO)

Academy Sports and Outdoors, Inc (ASO) breezed in August with a late 50DMA breakout in the second half of the month. ASO is a buy on the dips from here with a stop below the breakout line around $42. Earnings on September 9th keep me planted on the sidelines for now awaiting the market’s reaction. ASO has a whopping 25.1% of its float sold short, so post-earnings trading has the potential for large moves.

Academy Sports and Outdoors, Inc. (ASO) held onto all-time highs as post-earnings momentum continues.

Amicus Therapeutics, Inc (FOLD)

I first made the case for Amicus Therapeutics, Inc (FOLD) almost 7 months ago. The stock took about two more months to start a bottoming process. July’s pullback created a double-bottom from the May low. FOLD took advantage of August and breezed to a breakout from a 5-month long base that I used to accumulate more stock. A positive response to earnings last month seems to support this breakout. I am still a holder.

Amicus Therapeutics, Inc (FOLD) is slowly breaking out from a 5-month long base. Overhead resistance still looms from the 200DMA.

Nutanix, Inc (NTNX)

I made a major case for Nutanix (NTNX) over a year ago. No takeover yet for Nutanix, but the stock has doubled since then. My conviction motivated me to take advantage of big pullbacks in NTNX. I last took profits in early July and took a “rest” from there. Subsequently, last week’s post-earnings surge left me on the sidelines. Needless to say, NTNX is a buy on the dips from here. The stock is currently extremely stretched well above its upper Bollinger Band (BB).

Nutanix (NTNX) soared 7.0% to a fresh 28-month high as post-earnings momentum continues.

Workday, Inc. (WDAY)

Human resources software company Workday (WDAY) enjoyed a 9.1% post-earnings surge toward the end of the August breeze. Buyers are still piling into the stock. The upward pressure makes buying a fresh breakout to all-time highs more attractive.

Workday, Inc. (WDAY) gained 2.4% and followed through on post-earnings momentum. A challenge of the all-time high set in February is nearby.

Salesforce.com Inc (CRM)

Salesforce.com (CRM) gapped higher post-earnings but faded away from a challenge of the all-time high it set a year ago. I jumped into a calendar call position after sellers took CRM further into its gap. The resulting pattern looks like a “calm after the storm.” I am looking for buying interest to resume with an eventual test of all-time highs….as long as renewed interest continues in big cap tech stocks.

Salesforce.com Inc (CRM) churned the whole week as it stabilizes following a partial fade of post-earnings gains.

Ulta Beauty, Inc (ULTA)

Earnings took Ulta Beauty, Inc. (ULTA) from an all-time intraday high to a near flat close with the all-time closing high from the prior day. This “gap and crap” makes ULTA look like it topped out from exhausting buyers. However, the subsequent churn is positive and could create a base. The stock becomes a buy again just above the churn/consolidation at $393.

Ulta Beauty, Inc. (ULTA) is stabilizing after a full post-earnings fade.

Anaplan, Inc (PLAN)

Anaplan, Inc. (PLAN) is a cloud-based (of course) planning software company. PLAN made a major peak back in February, but the stock is on the move again. Earnings last week sent the stock well above its 200DMA resistance. After some post-earnings fading, buyers returned the last two days. I am a buyer here with a stop below the post-earnings low.

Anaplan, Inc. (PLAN) regained momentum after a partial post-earnings fade.

PVH Corp. (PVH)

Earnings created a false breakout for PVH Corp. (PVH) to a new 2021 high. Sellers stepped into the stock the last two days and took PVH below the former 2021 high. Now, the stock looks primed for more of the churn that has dominated trading for most of the year.

Sellers rejected the post-earnings breakout to a 2+ year high for PVH Corp (PVH). The stock closed the week with a 3.8% loss.

Ambarella, Inc. (AMBA)

Here is a stock I forgot about a long time ago: Ambarella, Inc. (AMBA). The action camera company GoPro (GPRO) put AMBA and its chips on the map. For a while, AMBA struggled and churned as GPRO fell out of favor. GPRO found new life after hitting rock bottom at the beginning of the pandemic (from $2 to $13 in a year!), and AMBA discovered resuscitation as well. AMBA climbed from around $37 at rock bottom to almost $130 in February. AMBA fell in the growth tantrum and bottomed with the end of the growth tantrum at the May lows. The 27% post-earnings gain last week re-establishes AMBA as a buy on the dips. The stock is currently over-extended with three straight closes well above its upper Bollinger Band (BB).

Ambarella, Inc. (AMBA) gained 3.4% as renewed post-earnings momentum pushed the stock to a new all-time high.

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 #351 over 21%, Day #34 over 31%, Day #9 over 41%, Day #6 over 51% (overperiod), Day #57 under 62% (underperiod), Day #121 under 72%

Source for charts unless otherwise noted: TradingView.com

Grammar checked by Grammar Coach from Thesaurus.com

Full disclosure: long UVXY call spread, long FOLD, long CRM calendar call spread, long JWN puts

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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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