Stock Market Commentary
Whether market breadth wanes or rallies, the stock market just maintains an upward drift through the path of least resistance. Last week, short-term market breadth partially improved thanks to a strong July jobs report. The lingering weakness from the previous week receded just enough to given the stock market a more bullish tint. However, under the covers, long-term market breadth has significantly lagged short-term market breadth. The breadth divergence gives me a new dynamic to worry about even as I ride the market’s upward drift.
The Stock Market Indices
The S&P 500 (SPY) stayed locked in drift until the last day of the week. The jobs report helped nudge the index to a new marginal all-time high.
The NASDAQ (COMPQX) had a very slight upward bias for most of the week. The tech-laden index had its time in the sun on Thursday with a 0.8% gain and all-time high. The NASDAQ closed the week with a slight pullback from that all-time high.
The iShares Trust Russell 2000 Index ETF (IWM) continues to make no progress overall. However, it out-performed the other major indices in the wake of the jobs report. I am looking for a breakout above the 50-day moving average (DMA) (red line below) to make a trade on a return to the top of the 2021 trading range.
Stock Market Volatility
The volatility index (VIX) consolidated for almost two weeks. The VIX looked ready for a fresh pop until the jobs report brought out the faders in full force. A 6.5% loss took the VIX right to 16.2 and confirmed stiff resistance at the 20 level for this round of trading.
The Short-Term Trading Call As Market Breadth Makes Gains
- AT50 (MMFI) = 43.2% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) = 62.5% 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, managed to close the week at a near 1-month high. The modest progress provided fresh fuel for my cautiously bullish short-term trading call. However, suddenly, AT200 (MMTH), the percentage of stocks trading above their respective 200DMAs, is a concerning laggard. This indicator of longer-term market breadth finished net down for the week and has made precious little progress since July’s oversold trading. This kind of significant divergence between AT50 and AT200 is rare. For now I interpret the divergence as a reason to stay cautious!
Stock Chart Reviews – Below the 50DMA
Uber Technologies, Inc. (UBER)
My pre-earnings trade on Uber Technologies, Inc (UBER) netted out exactly flat. Both the short calls and long puts went out worthless. I capped gains on shares too fast with a fresh short call expiring this week. UBER was down as much as 8% in after hours trading and opened down about 4%. Buyers took over from there and created a bullish engulfing bottom. If my covered call position survives the week, I will hold on to the shares with a stop below the post-earnings intraday low.
GoDaddy, Inc. (GDDY)
After a 2-month sprint off the pandemic lows, GoDaddy, Inc. (GDDY) has remained stuck in a trading range with a subtle upward drift. This upward bias came to an abrupt end with a 9-month low. GDDY could be a trade to return to the top of the trading after it shoves its way to a close above the intraday post-earnings high. Otherwise, the stock looks like it has downside risk to the lows of the trading range set in July.
Jack In the Box (JACK)
Casual dining not named Chipotle or Dominos continue to struggle. Jack in the Box (JACK) became the latest casual dining (or fast food) establishment to tumble post-earnings. JACK tumbled 2.7% and suffered a 200DMA breakdown. Buyers bought the stock off a 5-month low but quickly retreated from overhead resistance at the 200DMA.
CMC Materials, Inc (CCMP)
Semiconductor materials company CMC Materials, Inc (CCMP) struggled to make progress for 15 months. Two consecutive poor post-earnings performances dropped CCMP to prices last seen in May, 2020. This sell-off is quite bearish for CCMP. However, at this juncture, I prefer to look for signs of life to bet on a recovery.
Maxar Technologies (MAXR)
I followed an analyst upgrade on Maxar Technologies (MAXR) right into a post-earnings disappointment. Only an 8.1% rebound on strong volume on Friday keeps me in the stock. A close below the post-earnings intraday low will take me out.
Stock Chart Reviews – Above the 50DMA
Micron Technology, Inc (MU)
Micron Technology, Inc (MU) meandered downward from the 2021 highs for almost 4 months. Back in February, I made an ill-fated bet on MU finally cracking the $100 level. A confirmed 200 and 50DMA breakout has MU back in bullish shape. MU could eventually make another run for $100. I am a buyer here.
QuinStreet, Inc (QNST)
Internet performance marketing company QuinStreet, Inc (QNST) appeared to break the gloomy spell in place since the February peak. However, sellers descended quickly on Thursday’s post-earnings gap up over 200DMA resistance. The selling was strong enough to nearly push QNST into another test of 50DMA support. On net, QNST remains in limbo. I am not a buyer until a close above the 200DMA. The stock could be a short below the previous trading range.
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 #331 over 21%, Day #14 over 31%, Day #2 over 41% (overperiod), Day #25 under 51% (underperiod), Day #37 under 62%, Day #101 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 MAXR, long UBER covered call
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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.