Stock Market Commentary
All March long the stock market wrestled with inflation fears. After the S&P 500 (SPY) successfully rallied away from its 50-day moving average (DMA) (red line in the chart below) in early March, I recognized signs that the stock market’s churn was a sign of digestion of these fears. Yet, so-called growth stocks remained caught in a “growth tantrum” of selling pressure. It looked like money managers were managing the books for end-of-quarter positioning. Presumably, they wanted to demonstrate deference to the playbook of value (dominated by “re-open” stocks) over growth in an inflationary cycle.
Still, for a moment even the value stocks bowed to selling pressure as the S&P 500 tested 50DMA support for a second time in March. A bullish signal emerged from that test: buyers extended their interest to the previously scorned growth stocks. As the growth tantrum calms, the stock market extends its bullish signals. In other words, buying interest is broadening once again.
The Stock Market Indices
The S&P 500 (SPY) fulfilled the promise of its latest test of 50DMA support. The index sliced through the 4000 level to end the week at an all-time high. The S&P 500 (SPY) ended the holiday shortened week with a 1.2% gain.
The NASDAQ (COMPQX) is working hard to remain competitive. The growing calm for the growth tantrum helped prevent the tech-laden index from a direct test of its March lows. Moreover, the NASDAQ managed to close the week with a small 50DMA breakout. Follow-through buying extends the market’s bullish signals.
The iShares Trust Russell 2000 Index ETF (IWM) also turned things around. Like the NASDAQ, the index of small caps ended the week with a small 50DMA breakout. IWM is back in prime bullish form. Follow-through buying extends the market’s bullish signals. The ETF will be my main buying target in the coming week.
Stock Market Volatility
The volatility index (VIX) is also in prime bullish form. The VIX ended the week with a clean breakdown and break away from the 2-week churn that kept traders guessing about the seriousness of the growth tantrum. At a 13-month low, the VIX finally filled an important gap up from February. The path downward should stay rocky, but the overall bullish descent received major (bullish) confirmation on Thursday. The VIX extended the bullish signals in the stock market.
I continue to hold UVXY call options as a partial backstop to my bullish trades.
The Short-Term Trading Call With Calm for the Growth Tantrum
- AT40 (T2108) = 56.2% of stocks are trading above their respective 40-day moving averages
- AT200 (T2107) = 84.2% of stocks are trading above their respective 200-day moving averages (TradingView’s calculation)
- Short-term Trading Call: cautiously bullish
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, climbed to 56.2%. With extended bullish signals, my favorite technical indicator has clearance to soon return to the 70% overbought threshold. Importantly, I now see several critical and successful tests of support in March. These tests provide launching pads for April gains.
When the growth tantrum was in full throttle, Jim Cramer offered a narrative of five stages of stock market grief. The stock market seemed to move quickly from denial through and skipping by the remaining stages. However, acceptance did not come in the form of defeat. Instead, acceptance has produced a calm in the growth tantrum.
Stock Chart Video Reviews
Stock Chart Reviews – Below the 50DMA
iShares Expanded Tech-Software Sector ETF (IGV)
The expensive (cloud, SAAS, etc…) software stocks are ground zero for the growth tantrum. The selling in iShares Expanded Tech-Software Sector ETF (IGV) was brief but deep. IGV spent 5 trading days from a 50DMA breakdown to a near test of 200DMA support in early March. IGV never closed lower from there and numerous growth stocks spent the month teasing, testing, and in some cases breaking 200DMA support. Still, IGV is the blueprint. The calm in the growth tantrum helped push IGV to a (marginal) 1-month high. A 50DMA breakout would confirm the calm and a firm end to the growth tantrum.
MongoDB (MDB)
Database software company MongoDB (MDB) lags IGV, but it is still benefitting from the calm in the growth tantrum. MDB started the week with a bearish confirmation of a 200DMA breakdown. The stock ended the week with a fresh 200DMA breakout. MDB rebounded in impressive form from a hammer-like bottoming pattern. I now like MDB as a play for a test of downtrending 50DMA resistance.
iShares Silver Trust (SLV)
Despite the narrative of inflation fears in March, the iShares Silver Trust (SLV) languished the entire month. SLV even closed below its 200DMA for the first time since last May. A 2.0% gain on Thursday poked SLV above the 200DDMA. After follow-through buying, I will take another swing at call options. Note how SLV has not been the same since the short-lived attempt to run up the price of silver on February 1. The Chicago Mercantile Exchange (CME) quickly squashed the wild speculation by raising margin requirements on silver futures.
Twilio (TWLO)
The growth tantrum hit communications software company Twilio (TWLO) hard. At the test of 200DMA support, TWLO was down around 30% from its all-time high. When TWLO gapped up to confirm the test, I jumped into an April $355/370 call spread. This position is a play for a test of 50DMA resistance.
Carmax Inc. (KMX)
Used car dealer Carmax Inc (KMX) reported earnings that investors greeted with a 7.1% pullback. The accompanying 50DMA breakdown looks bearish. KMX is a short with a tight stop above its 50DMA.
Stock Chart Reviews – Above the 50DMA
Tecurium Corn Fund (CORN)
After rangebound trading for nearly three months, Tecurium Corn Fund (CORN) erupted for a 7.0% gain. Corn futures traded limit up, meaning that the price hit its maximum allowed gain for the day.
The US Department of Agriculture (USDA) forecast smaller than expected plantings. Food inflation will surely get worse before it gets better. In the meantime, I am still looking for a new entry in CORN, but Friday’s 1.1% pullback may become the best opportunity for a while.
U.S. Concrete (USCR)
U.S. Concrete (USCR) is on a very regular cycle following and testing its 50DMA support. Expectations for a ramp in infrastructure spending keep USCR grinding higher. However, on Thursday, USCR fell 9.6% on news of a large drop in cement volumes from the historic freeze in Texas. Clearly, this is a temporary disruption. Traders are almost always too quick to sell USCR for weather-related mishaps. I learned about this behavior from one of my interviews with former CEO Bill Sandbrook.
I will start a fresh USCR position on the first signs of renewed buying interest. Hopefully the opportunity happens right at the regularly scheduled programming with 50DMA support.
Microsoft (MSFT)
Microsoft (MSFT) spent most of March churning in a tight trading range. MSFT broke out with a 2.8% gain to end the week. I like buying such breakouts. However, MSFT closed above its upper Bollinger Band (BB). Moreover, the February rolling highs look like tough resistance. Accordingly, I will buy a breakout to an all-time high.
Acuity Brands Inc (AYI)
The breakout and surge in Acuity Brands (AYI) completely took me by surprise. I gave up AYI for “dead” after an October post-earnings plunge. AYI bottomed for good at the end of that month and even survived another post-earnings pullback in January. THIS time around, AYI soared 13.3% post-earnings and buyers followed through the next day. I scanned the transcript of the earnings conference call for clues. Acuity Brands is positioned as an inflation play with the ability to push pricing increases to its customers. The company is innovating; it even has a lighting product the disinfects the air in commercial spaces. Such products are attractive for our heightened awareness of airborne pathogens like the coronavirus.
AYI peaked at an all-time high around $279 in August, 2016. The stock looks like it is finally turning around. I am a buyer on dips.
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 #117 over 20%, Day #101 above 30%, Day #99 over 40%, Day #6 over 50% (overperiod), Day #11 under 60%, Day #30 under 70%
Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%). Source: FreestockCharts
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long UVXY calls, long SPY put spread, long SLV calls, long TWLO 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. TradingView.com charts for currencies use Tokyo time as the start of the forex trading day.