{"id":42698,"date":"2018-02-15T01:58:42","date_gmt":"2018-02-15T09:58:42","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=42698"},"modified":"2018-02-15T01:58:42","modified_gmt":"2018-02-15T09:58:42","slug":"t2108-update-180214","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/02\/15\/t2108-update-180214\/","title":{"rendered":"Above the 40 (February 14, 2018) – A Bullish Tech Breakout Underlines the End of Oversold Conditions"},"content":{"rendered":"

AT40<\/strong> = 27.5% of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200<\/strong> = 48.3% of stocks are trading above their respective 200DMAs
\nVIX<\/strong> = 19.3 (drop of 22.9%)
\nShort-term Trading Call<\/strong>: bullish<\/p>\n

PROLOGUE<\/strong>
\nValentine’s Day, February 14th, was a great day in the stock market and a fantastic validation of my strategizing during the recent oversold periods. However, I was not able to complete a victory lap out of respect for and mourning over the latest mass shooting in the U.S., this time at a Parkland, Florida high school<\/a>. This blog is of course about financial markets, but I would be remiss not to acknowledge this particular tragedy. Even as the homicide rate continues a decades long decline in America<\/a>, the relentless occurrence of mass shootings seems obstructs any sense of comfort from the raw statistics.<\/p>\n

Commentary<\/strong>
\nSo maybe the stock market is not so scared about inflation and rising rates after all. The Consumer Price Index (CPI) report came in slightly hotter than “expected” and created an instant negative response in stock futures. The S&P 500 (SPY) gapped down in the morning and buyers stepped right in from there. Around 10am Eastern someone ignited the rocket under the market and that was all she wrote for the earlier negative sentiment. At the close, the S&P 500 (SPY) gained 1.3%, the NASDAQ gained 1.9%, and the PowerShares QQQ ETF (QQQ) gained 1.9%. Most importantly, both the NASDAQ and QQQ bullishly punched right through their respective 50-day moving averages (DMAs).<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) gapped down at the open and barely looked back as the bear trap was sprung. The gap fill and continued buying was a sign that the buyers were taking over control.<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The S&P 500 (SPY) posted its highest close since day of the VIX’s record percentage gain. The 50DMA still looms overhead as resistance.<\/figcaption><\/figure>\n
\"The<\/a>
The NASDAQ plowed through 50DMA resistance for a 1.9% gain.<\/figcaption><\/figure>\n

\"The<\/a>
The PowerShares QQQ ETF (QQQ) rallied alongside the NASDAQ as it too shattered 50DMA resistance.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Given my bullish trading call, I used the morning’s dip to add to my call options on SPY. I decided I have sufficient hedging to protect enough of my backside in case sellers abruptly reappear to spoil the party. I was very tempted to sell my all my SPY call options at the close, but I held. I want to wait until at least a test of 50DMA resistance.<\/p>\n

I first saw the 10am turning point in the currency markets. At that time, I assumed “something” happened, but I failed to find anything definitive (and at the time of writing I still even lack speculation). So once I saw stocks shifting into high gear, I assumed the bounce out of oversold conditions was still in full force. The change in character was in a weakened U.S. dollar and a weakened Japanese yen. I use a 15-min intraday chart to show how quickly the angst over the CPI ended: no more than 15 minutes. So by the time the market opened almost an hour later, it was probably clear to attentive traders that the gap down in stocks needed to get bought.<\/p>\n


\n
\"EUR\/USD<\/a>
EUR\/USD shows how the dollar quickly strengthened in the immediate aftermath of the CPI report….and how quickly the apparent angst ended.<\/figcaption><\/figure><\/p>\n
\"AUD\/JPY<\/a>
AUD\/JPY created a very steep V-pattern in the wake of the CPI report. The Japanese yen weakened across the board as “risk on” overwhelmed buyers.<\/figcaption><\/figure>\n

\"The<\/a>
The daily AUD\/JPY chart shows how the post-CPI plunge seemed to flash a bearish signal: a clear break of the previous low. Also note how the head and shoulders pattern still holds as a top.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The volatility index, the VIX, left no doubt that the day was bullish. The implosion of the VIX continued as expected<\/a>, and it closed with a 22.9% loss. A complete reversal of the historic day is close at hand. However, I used this opportunity to significantly scale back my volatility fades by selling my ProShares Short VIX Short-Term Futures (SVXY) call options and most of my ProShares Ultra VIX Short-Term Futures (UVXY) put options. I kept my short on iPath S&P 500 VIX ST Futures ETN (VXX). <\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, is leaving extreme angst far in the rear view mirror.<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The iPath S&P 500 VIX ST Futures ETN (VXX) lost 11.7% on its way to a rendezvous with its 200DMA. Note how quickly volume has also retreated nearly every day since the peak.<\/figcaption><\/figure>\n

\"The<\/a>
The ProShares Ultra VIX Short-Term Futures (UVXY) lost a whopping 22.8% in a move that highlighted the 200DMa downtrend. Like VXX, trading volume is also quickly drying up.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Finally, AT40 (T2108), the percentage of stocks trading over their respective 40DMAs, surged to 27.5%, its highest close since the first oversold period<\/a>. For traders following the conservative oversold trading strategy, today would be particularly gratifying as the previous day’s buys would be deep in the green.<\/p>\n

I got a kick watching the good folks on Nightly Business Report (NBR) struggle to explain why the market seemed to react so differently to inflationary pressures than last time. I am sure they had good company. I think the simplest explanation works best: the most motivated sellers who are terrified by the inflation-related readings finally exhausted themselves with the CPI report. <\/p>\n


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