Stock Market Commentary
The case for a sustainable low—but not necessarily a bottom—continues to develop. Today’s catalyst came from Federal Reserve Chair Jerome Powell, who breathed more life into market breadth. Market breadth continued its steady expansion. Over the past three of four trading days, there has been clear expansion in breadth, now reaching a critical resistance point.
Confirming the expansion in market breadth, SwingTradeBot shows a notable shift in short-term trends, flipping from a mix of down and flat to an upward trend. Despite this improvement, a scan of stocks breaking above their 200-day moving averages (DMA) (blue line in the charts) produced surprisingly few strong trading candidates. Still, the overall market continues to look more constructive and supportive of my short-term cautiously bullish trading call.
The Stock Market Indices
The S&P 500 (SPY), on its 15-minute chart, reacted to the Fed’s statement with defined key levels of support and resistance. Support rests at 5,633, where buyers celebrated the Fed’s statement, while resistance was hit just above the weekly high at 5,715. This tight range could dictate market action over the next few days or even weeks.
On the daily chart, SPY has maintained a pattern of alternating up and down days. It continues to inch towards resistance at the 200DMA, which I expect to get tested either this week or next. I took profits on an SPY call option once SPY hit a 1% gain on the day.
The NASDAQ (COMPQ) followed a similar pattern, though its trend remains flat rather than turning upward. The index opened lower than Monday but reached a similar high, showing a churning pattern rather than a decisive trend.
Unlike the S&P 500 and NASDAQ, the iShares Russell 2000 ETF (IWM) managed to close at its highest level for the week. It remains in a deep bear market but is showing signs of more potential upside. The ETF is facing converging overhead resistance levels, yet continued strength above the 20DMA (the dotted line) would suggest further gains could be on the horizon. I will not mind chasing IWM higher at that point.
The Short-Term Trading Call Received More Life
- AT50 (MMFI) = 32.6% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) = 41.1% of stocks are trading above their respective 200-day moving averages
- Short-term Trading Call: cautiously bullish
AT50 (MMFI), the percentage of stocks above their 50DMAs, closed at 32.6%. My favorite technical indicator continued its steady expansion. Over the past four trading days, three have shown clear expansion in breadth, reaching a critical point where it must break through a downtrending 20DMA. Similarly, MMTH (AT200), the percentage of stocks trading above their 200DMAs, is also expanding. This indicator of longer-term market health faces its first major test at the declining 20-day moving average.
The volatility index (VIX) has declined sharply and now sits just below the 20 level, which is traditionally considered elevated. This drop confirms the expanded market breadth and a general easing of market fears, aided by today’s Fed developments.
The Equities: More Life
Fair Isaac Corporation (FICO) has shown a stable post-earnings consolidation. While it has not surged, the stock’s historical pattern suggests that buying near the 200DMA offers a strong long-term entry point. The next move higher will confirm a 200DMA breakout.
Itron, Inc. (ITRI) caught my attention in the 200-day moving average scan with swingtradebot. ITRI has held its post-earnings gains and remains above all key moving averages (20DMA, 50DMA, 200DMA). This makes ITRI an attractive buy candidate, with a well-defined stop-loss level around $101.60-$101.75.
The iShares Expanded Tech-Software ETF (IGV)representing software stocks like Salesforce (CRM) and Adobe (ADBE), has struggled to break out above its 200DMA. A failure here would put IGV on my short list. Note the double top that could stop cold an extended rally, especially at the neckline (not shown in the chart below, see the January low for an approximate level). I have seen these double tops on a lot of stocks across many sectors! This setup is something to watch out for in coming weeks when/if the market forgets all about today’s chaos and uncertainty and resumes discounting good times ahead.
Despite closing above its 200DMA after earnings, William Sonoma, Inc. (WSM) struggled with high selling volume and a wide trading range. A previous earnings gap remains unfilled, making the stock a short candidate if it drops back below its 200DMA.
Be careful out there!
Footnotes
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“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 #316 over 20%, Day #3 over 30% (overperiod), Day #13 under 40%, Day #25 under 50%, Day #52 under 60%, Day #153 under 70%
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long SPY shares, long QQQ call, long VXX put options
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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.
* Blog notes: this blog was written based on the heavily edited transcript of the following video that includes a live review of the stock charts featured in this post. I used ChatGPT to process the transcript.