Stock Market Commentary
The market took just one more day to resume the momentum of expanding market breadth. An extreme October set up this bullish start to November with fresh all-time highs for major indices. While small caps as a group just missed an all-time high, the surge in small caps drove a bullish expansion of market breadth. The ETF for small caps is just one step away from opening up a new vista of bullishness for the stock market.
The Stock Market Indices
The iShares Russell 2000 ETF (IWM) soared 2.6% and closed at its high of the day. That close stopped just short of the all-time high set on March 21st. IWM is one more rally away from creating a long overdue breakout from a near year-long trading range. Such breakouts are bullish on their own. This breakout will have the extra momentum of of an expansion of market breadth.
The S&P 500 (SPY) eked out a 0.2% gain for a new all-time high.
The NASDAQ (COMPQX) extended its sprint with a 0.6% gain to an all-time high.
Stock Market Volatility
The volatility index (VIX) refused to confirm the bullish implications of the trading that started the month of November. The VIX managed a 0.9% gain. With a Federal Reserve meeting ahead and jobs report on Friday, the market should have at least a modicum of concern in it. If these events resolve in the market’s favor, I expect the VIX to quickly fall back to 15 support.
The Short-Term Trading Call With An Expansion of Market Breadth
- AT50 (MMFI) = 62.5% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) 54.1% of stocks are trading above their respective 200-day moving averages
- Short-term Trading Call: cautiously bullish
AT50 (MMFI), the percentage of stocks trading above their respective 50DMAs, closed at a 5-month high. This breakout and expansion of market breadth finally put an end to the primary and secondary downtrends in AT50. Even with overbought trading conditions providing the next level of concern at 71%, I am compelled to flip the trading call to cautiously bullish from neutral. AT50 essentially provided a fresh all-clear signal for the trading ahead.
As noted above with the VIX, this week has two major events which could promptly change the technical outlook. However, for now, the entire market has a constructive setup, especially with October providing its own positive signal.
AT200 (MMTH), the percentage of stocks trading above their respective 200DMAs, closed at a 2-month high. While this move is not nearly as impressive as AT50’s breakout, the expansion in market breadth from AT200 is important nonetheless. AT200 ended its primary downtrend and continues to make higher highs and higher lows. An on-going expansion in market breadth from AT200 would provide a solid foundation for the stock market and fuel a robust rally.
Stock Chart Reviews – Below the 50DMA
Starbucks (SBUX)
After all that bullish talk, one of my key trades on the day was a set of pair of put options. In the last Market Breadth post, I explained the bearish setup for SBUX. A rebound back to the neckline of the head and shoulders pattern provided the opportunity for buying cheaper put options to play the bearish setup. However, buying volume was so strong, I now think SBUX has a good chance of rallying right back to its 200DMA resistance. After all, in a market percolating with bullish sentiment discounts in popular stocks tend to get bought.
Match Group, Inc. (MTCH)
Match Group, Inc. (MTCH) gained 2.2% a day ahead of earnings. Options have priced in a +/- 6.4% post-earnings move although MTCH has experienced much bigger moves in the recent past. The more muted reactions of the past three quarters have presumably driven pricing downward. I took a flyer on a strangle (calls and puts) that profits from MTCH moving above 7% or so in either direction.
Garmin Ltd (GRMN)
Garmin Ltd (GRMN) provided bearish follow-through. I chased the stock downward with a November $140/130 put spread.
Deere & Co (DE)
Deere & Co (DE) made progress in a labor dispute. The stock soared 4.8% in response. DE generated the bullish breakout I was looking for. I bought a Nov $370 calendar call spread. I am using the weekly short side to fund what I hope will be a 2 week rally into late November earnings.
Stock Chart Reviews – Above the 50DMA
Advanced Micro Devices Inc. (AMD)
Looks like Advanced Micro Devices (AMD) will not provide an easy entry. Despite an analyst downgrade, AMD jumped 4.2% and closed at an all-time high. The stock is now all-clear to ride the stock market’s expansion of market breadth.
Plug Power (PLUG)
Plug Power (PLUG) made a breakaway move with an 8.8% gain. The stock pushed into its March gap down and further confirmed the bullishness of last week’s breakout.
QuantumScape Corporation (QS)
EV battery-maker QuantumScape Corporation (QS) is on the move. QS trades at post-earnings highs and also trades above the price points of the previous two earnings reports. With a 4-month high in place, 50DMA support looks secured. I am now back in the buyer’s circle for QS, especially with alternative energy plays catching fire all over again. Note the high buying volume from the past two trading days.
Tesla (TSLA)
This chart really needs no formal introduction. Tesla (TSLA) is going parabolic. The stock is already up 39.6% since reporting earnings just under 2 weeks ago. I am following my standard caution about parabolic moves and waiting this rally out. Tesla is now worth an astounding $1.2 trillion in market cap!
Skechers U.S.A., Inc. (SKX)
I may not be able to wait for a “calm after the storm” in Skechers U.S.A., Inc. (SKX). SKX rebounded away from 50DMA support and all but confirmed the bullishness of last week’s earnings report. My trading approach now is to accumulate shares in tranches. I will stop out on a confirmed 200DMA breakdown.
Spot Technology (SPOT)
Like Plug Power (PLUG), Spot Technology (SPOT) is running away. A 4.0% gain earned SPOT a 7-month high. Needless to say, SPOT remains a buy on the dips.
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 #388 over 21%, Day #51 over 31%, Day #23 over 41%, Day #3 over 51% (overperiod), Day #94 under 62% (underperiod), Day #168 under 72%
Source for charts unless otherwise noted: TradingView.com
Grammar checked by Grammar Coach from Thesaurus.com
Full disclosure: long UVXY calls , long QQQ calls, long SBUX puts, long MTCH call and put, long GRMN put spread, long DE 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.