{"id":37928,"date":"2017-02-04T13:58:27","date_gmt":"2017-02-04T21:58:27","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=37928"},"modified":"2017-02-05T14:12:20","modified_gmt":"2017-02-05T22:12:20","slug":"t2108-update-170203","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2017\/02\/04\/t2108-update-170203\/","title":{"rendered":"Above the Forty (AT40 – February 3, 2017): The S&P 500 Bids to End Bearish Divergence"},"content":{"rendered":"

AT40 Status<\/strong>: 60.3% of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200 Status<\/strong>: 68.4% of stocks are trading above their respective 200DMAs
\nVIX Status<\/strong>: 11.0 (volatility index)
\nShort-term Trading Call<\/strong>: neutral<\/p>\n

Commentary<\/strong>
\nNothing says “strong sentiment” like a stock market that actually rallies on a strong U.S. jobs report: the fear of the implications for hawkish monetary policy has seemingly disappeared. The S&P 500 (SPY) jumped 0.7% in the wake of the report on January jobs<\/a>. The index closed within a point of its all-time high. The NASDAQ (QQQ) pushed to a new all-time high by 6 points.<\/p>\n


\n
\"The
The S&P 500 (SPY) moves within “inches” of invalidating its 3-day abandoned baby top.<\/figcaption><\/figure><\/p>\n

\"The
The NASDAQ (QQQ) closed at a new all-time high<\/figcaption><\/figure>
\n<\/center><\/p>\n

The current rally has been one of the more stealthy (and halting) ones in a long time.<\/p>\n

After the NASDAQ bounced off its pre-election low on November 4th, it made a statement after December 1st when it bounced off support at its 50-day moving average (DMA) with a 20DMA newly trending upward. The S&P 500 on the other hand came to a screeching halt after its December high on the 13th. Its breakout on January 25th should have heralded a confirmation of a new bullish turn but instead the index came to another complete halt. THAT pause turned toppy when the index gapped down and formed a 3-day abandoned baby top<\/a>. Amazingly, the S&P 500 failed to close cleanly below my line in the sand at 2,280 marking off bearish territory. Now, the index has come back to attempt an invalidation of the bearish topping pattern.<\/p>\n

My short-term trading call stays at neutral despite the bullish prospects. The bearish divergence between the S&P 500 and AT40<\/a> remained in place despite AT40’s hop from 53.3% to 60.3%. AT40<\/a> closed just below a downtrending 20DMA; only a move back into overbought territory will end the bearish divergence. Moreover, as I have stated in earlier posts, I will not flip the trading call to bullish on a fresh breakout simply because the volatility index, the VIX, is so dangerously low.<\/p>\n


\n
\"The
The volatility index, the VIX, plunged 8.1% to return to 2 1\/2 year lows.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The bounce in the VIX on January 30th when the S&P 500 gapped down made sense because the VIX historically has spent little time plumbing these depths. Yet, the bears and sellers continue to prove incapable of sealing the deal. This trading situation is sub-optimal as I would prefer to be definitive about the trading call when there are so many individual stocks making definitive (up AND down) moves. But it is what it is.<\/p>\n

My overall strategy is to keep bullish trades tightly focused on my preferred sectors of commodities, homebuilders, and cybersecurity and be open to one-off cases. This approach allows me to avoid regret since these are areas I like over longer periods of time and have no problem accumulating (conditionally) on sell-offs. Outside of that, I am looking for reasons to short. Again, not ideal, but this is what happens with a neutral short-term trading posture.<\/p>\n

<\/p>\n
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@IBDinvestors<\/a> #myIBD<\/a> $RPD<\/a> – basically the cyber security space.<\/p>\n

— Dr. Duru (@DrDuru) August 26, 2016<\/a><\/p><\/blockquote>\n