{"id":42765,"date":"2018-02-18T21:16:36","date_gmt":"2018-02-19T05:16:36","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=42765"},"modified":"2018-02-18T21:16:36","modified_gmt":"2018-02-19T05:16:36","slug":"t2108-update-180216","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/02\/18\/t2108-update-180216\/","title":{"rendered":"Above the 40 (February 16, 2018) &#8211; A Cloud Emerges Above the Oversold Bounce"},"content":{"rendered":"<p><strong>AT40<\/strong> = 32.8% of stocks are trading above their respective 40-day moving averages (DMAs)<br \/>\n<strong>AT200<\/strong> = 49.5% of stocks are trading above their respective 200DMAs<br \/>\n<strong>VIX<\/strong> = 19.5<br \/>\n<strong>Short-term Trading Call<\/strong>: cautiously bullish (downgrade from bullish &#8211; see below for more details)<\/p>\n<p><strong>Commentary<\/strong><br \/>\nThe trading contours in the aftermath of an oversold episode can move quickly. Another important juncture arrived on Friday in the form of a potentially bearish pattern.<\/p>\n<p>The bulls were fully in control again on Friday as the S&#038;P 500 (SPY) looked like it was going to print an important confirmation of a breakout above its 50-day moving average (DMA). However, once headlines blazed with news about <a href=\"https:\/\/www.cnbc.com\/2018\/02\/16\/indicted-russians-had-paypal-cryptocurrency-exchange-accounts.html\" rel=\"noopener\" target=\"_blank\">indictments of 13 Russian nationals over meddling in U.S. elections<\/a>, the party came to an abrupt halt. The result was a fade sharp enough off the highs to create bearish signals across many stocks and even indices: the dreaded evening star. <a href=\"http:\/\/stockcharts.com\/school\/doku.php?id=chart_school%3Achart_analysis%3Acandlestick_bearish_reversal_patterns\" rel=\"noopener\" target=\"_blank\">An evening star is a sign of potential reversal<\/a> at the end of an uptrend that has exhausted buyers.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_42773\" aria-describedby=\"caption-attachment-42773\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_SP500-5min.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_SP500-5min.jpg\" alt=\"This 5-minute chart of the S&amp;P 500 (SPY) shows how strong the buyers were until the lunch hour. Sellers took over from there and for good measure sold hard into the last 5 minutes.\" width=\"550\" height=\"378\" class=\"size-full wp-image-42773\" \/><\/a><figcaption id=\"caption-attachment-42773\" class=\"wp-caption-text\">This 5-minute chart of the S&#038;P 500 (SPY) shows how strong the buyers were until the lunch hour. Sellers took over from there and for good measure sold hard into the last 5 minutes.<\/figcaption><\/figure><\/p>\n<figure id=\"attachment_42774\" aria-describedby=\"caption-attachment-42774\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_SP500.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_SP500.jpg\" alt=\"The fade from the high of the day stopped just short of the 50DMA for the S&amp;P 500 (SPY)\" width=\"550\" height=\"386\" class=\"size-full wp-image-42774\" \/><\/a><figcaption id=\"caption-attachment-42774\" class=\"wp-caption-text\">The fade from the high of the day stopped just short of the 50DMA for the S&#038;P 500 (SPY)<\/figcaption><\/figure>\n<figure id=\"attachment_42771\" aria-describedby=\"caption-attachment-42771\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_NASDAQ.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_NASDAQ.jpg\" alt=\"The fade pushed the NASDAQ into a marginally negative close on the day right at its 20DMA.\" width=\"550\" height=\"391\" class=\"size-full wp-image-42771\" \/><\/a><figcaption id=\"caption-attachment-42771\" class=\"wp-caption-text\">The fade pushed the NASDAQ into a marginally negative close on the day right at its 20DMA.<\/figcaption><\/figure>\n<p><figure id=\"attachment_42772\" aria-describedby=\"caption-attachment-42772\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_QQQ.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_QQQ.jpg\" alt=\"The fade pushed the PowerShares QQQ ETF (QQQ) into a 0.5% loss on the day just above its 20DMA.\" width=\"550\" height=\"403\" class=\"size-full wp-image-42772\" \/><\/a><figcaption id=\"caption-attachment-42772\" class=\"wp-caption-text\">The fade pushed the PowerShares QQQ ETF (QQQ) into a 0.5% loss on the day just above its 20DMA.<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>The bearish evening star pattern needs confirmation with a down day. A close above the intraday high invalidates the pattern. Given the precarious state of the oversold bounce, I decided to downgrade my short-term trading call to &#8220;cautiously bullish.&#8221; I will be even more aggressive on the bullish side if\/when the bearish pattern gets invalidated. As a reminder, <a href=\"http:\/\/drduru.com\/onetwentytwo\/2018\/02\/15\/t2108-update-180214\/\" rel=\"noopener\" target=\"_blank\">I switch to bearish if\/when the S&#038;P 500 breaks and closes below 2649<\/a>. If AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, drops into oversold conditions at the same time, I will have to keep the trading call at cautiously bullish but be prepared for a much more extended churn through the oversold period.<\/p>\n<p>AT40 closed at 32.8%. My favorite technical indicator has not yet reached &#8220;escape velocity&#8221; from oversold territory (below 20%). An AT40 above 40% will add powerful confirmation to an invalidation of the evening star.<\/p>\n<p>The volatility index, the VIX, notched its first gain, albeit minor, in over a week. The implosion of volatility will not be complete until it falls below the 15.35 pivot. Hanging around the current level of 20 keeps volatility in &#8220;elevated&#8221; territory. I am actively looking for the next opportunity to fade volatility. Perhaps starting around 25, the risk\/reward for such a fade will get too good to pass up. The chart below shows how well past surges of volatility from 2010 to 2012 created well-defined brackets for this latest surge of volatility. <\/p>\n<p><center><br \/>\n<figure id=\"attachment_42768\" aria-describedby=\"caption-attachment-42768\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_VIX.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_VIX.jpg\" alt=\"The volatility index, the VIX, finally stood its ground after imploding for over a week. The largest percentage gain for volatility is still not quite completely reversed.\" width=\"550\" height=\"376\" class=\"size-full wp-image-42768\" \/><\/a><figcaption id=\"caption-attachment-42768\" class=\"wp-caption-text\">The volatility index, the VIX, finally stood its ground after imploding for over a week. The largest percentage gain for volatility is still not quite completely reversed.<\/figcaption><\/figure><br \/>\n<\/center> <\/p>\n<p><strong>CHART REVIEWS<\/strong><\/p>\n<p><strong>U.S. Steel<\/strong> (X)<br \/>\nTo start last week, <a href=\"http:\/\/drduru.com\/onetwentytwo\/2018\/02\/13\/t2108-update-180212\/\" rel=\"noopener\" target=\"_blank\">I pointed out another bullish pattern developing on X<\/a>. I saw a breakout brewing but was prepared to accumulate shares down to about $33. I never got that chance. Instead, X confirmed the breakout the next day, and I failed to grab the call options at the price I wanted. The next day, I failed again, but bought shares just to make sure I did not miss a move if I never got my fill of call options.<\/p>\n<p>This trade turned into one of those moments I look back and WISH I was aggressive from the start. On Friday, U.S. Steel soared 14.8% on the heels of yet <a href=\"https:\/\/www.cnbc.com\/2018\/02\/16\/commerce-department-suggests-trump-impose-steep-tariffs-or-quotas-on-foreign-steel-and-aluminum--sources.html\" rel=\"noopener\" target=\"_blank\">more tariff news on imported steel and aluminum<\/a>. X is now at a 3 1\/2 year high. I will be putting a tight stop on this trade as I suspect the celebration over trade wars could end at any time.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_42766\" aria-describedby=\"caption-attachment-42766\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_X.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_X.jpg\" alt=\"U.S. Steel (X) delivers a powerful confirmation of a 50DMA breakout.\" width=\"550\" height=\"404\" class=\"size-full wp-image-42766\" \/><\/a><figcaption id=\"caption-attachment-42766\" class=\"wp-caption-text\">U.S. Steel (X) delivers a powerful confirmation of a 50DMA breakout.<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p><strong>Cboe Global Markets, Inc.<\/strong> (CBOE)<br \/>\nMy vigil over CBOE continues as I try to decide on an entry point to go long. <\/p>\n<p>Last week started with serious allegations of VIX manipulation. CBOE vigorously denied the charge and defended the integrity of its product. The market ignored the noise and sent CBOE higher until the end of the week. Sellers stepped back in and sent CBOE to a 5.1% loss. The high volume suggests that CBOE&#8217;s bounce from a post-earnings sell-off is over. A close above $118 invalidates the latest bearish move, but I expect a retest of 200DMA support first.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_42777\" aria-describedby=\"caption-attachment-42777\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_CBOE.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/02\/180216_CBOE.jpg\" alt=\"Cboe Global Markets, Inc. (CBOE) ended the week on a sour note as nearly 3 days of hard-earned, post-earnings recovery gains were wiped out at once.\" width=\"550\" height=\"390\" class=\"size-full wp-image-42777\" \/><\/a><figcaption id=\"caption-attachment-42777\" class=\"wp-caption-text\">Cboe Global Markets, Inc. (CBOE) ended the week on a sour note as nearly 3 days of hard-earned, post-earnings recovery gains were wiped out at once.<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>&#8212; &#8211; &#8212;<br \/>\n<center><br \/>\n<strong>FOLLOW Dr. Duru&#8217;s commentary on financial markets via <a href=\"https:\/\/feedburner.google.com\/fb\/a\/mailverify?uri=onetwentytwo\" target=\"_blank\">email<\/a>, <a href=\"http:\/\/stocktwits.com\/DrDuru\" target=\"_blank\">StockTwits<\/a>, <a href=\"https:\/\/twitter.com\/DrDuru\" target=\"_blank\">Twitter<\/a>, and even <a href=\"https:\/\/www.instagram.com\/drduru_market_breadth\/\" target=\"_blank\">Instagram<\/a>!<\/strong><br \/>\n<\/center><\/p>\n<p>&#8220;Above the 40&#8221; uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for &#8220;T2108&#8221; which was created by <a href=\"http:\/\/www.worden.com\/CURRENTAFPROMO.aspx?AFCODE=866\" target=\"_blank\">Worden<\/a>. Learn more about T2108 on my <a href=\"http:\/\/drduru.com\/onetwentytwo\/about\/t2108-resource-page\/\">T2108 Resource Page<\/a>. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.<\/p>\n<p><strong>Active AT40 (T2108) periods<\/strong>: Day #4 over 20%, Day #2 over 30%, Day #11 under 40%, Day #11 under 50%, Day #12 under 60%, Day #18 under 70%<\/p>\n<p><center><br \/>\n<strong>Daily AT40 (T2108)<\/strong><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\"><img loading=\"lazy\" decoding=\"async\" title=\"T2108 (DAILY)\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\" alt=\"\" width=\"500\" height=\"350\" \/><\/a><\/p>\n<p>Black line: AT40 (T2108) (% measured on the right)<br \/>\nRed line: Overbought threshold (70%); Blue line: Oversold threshold (20%)<br \/>\n<\/center><\/p>\n<p><center><br \/>\n<strong>Weekly AT40 (T2108)<\/strong><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\"><img loading=\"lazy\" decoding=\"async\" title=\"Weekly T2108\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\" alt=\"Weekly T2108\" width=\"500\" height=\"350\" \/><\/a><br \/>\n*<strong>All charts created using <\/strong><strong><a title=\"Freestockcharts.com\" href=\"http:\/\/www.freestockcharts.com\/\" target=\"_blank\">freestockcharts.com<\/a><\/strong> unless otherwise stated<\/center><\/p>\n<p>The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post <a href=\"http:\/\/drduru.com\/onetwentytwo\/tag\/t2108\/\" target=\"_blank\">click here<\/a>.<\/p>\n<p>\n<strong>Related links:<\/strong><br \/>\n<a href=\"http:\/\/drduru.com\/onetwentytwo\/about\/t2108-resource-page\/\">The AT40 (T2108) Resource Page<\/a><br \/>\nYou can <a href=\"http:\/\/twitter.com\/#!\/search\/%23T2108\">follow real-time T2108 commentary<\/a> on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using <a href=\"http:\/\/twitter.com\/#!\/search\/%23120trade\" target=\"_blank\">the #120trade hashtag<\/a>.<\/p>\n<p>Be careful out there!<\/p>\n<p>Full disclosure: long UVXY puts, long ALGN call<\/p>\n<p>*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies. Stock prices are not adjusted for dividends.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>AT40 = 32.8% of stocks are trading above their respective 40-day moving averages (DMAs) AT200 = 49.5% of stocks are trading above their respective 200DMAs VIX = 19.5 Short-term Trading Call: cautiously bullish (downgrade from bullish &#8211; see below for more details) Commentary The trading contours in the aftermath of an oversold episode can move &#8230; <a title=\"Above the 40 (February 16, 2018) &#8211; A Cloud Emerges Above the Oversold Bounce\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2018\/02\/18\/t2108-update-180216\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[482,199,548,511,62],"tags":[1819,739,413,535,65,1594,226,193,303,194],"class_list":["post-42765","post","type-post","status-publish","format-standard","hentry","category-breakout","category-commodities","category-financials","category-support","category-technical-analysis","tag-at40","tag-cboe","tag-nasdaq","tag-qqq","tag-sp-500","tag-steel","tag-t2108","tag-u-s-steel","tag-vix","tag-x"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Above the 40 (February 16, 2018) - A Cloud Emerges Above the Oversold Bounce - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2018\/02\/18\/t2108-update-180216\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Above the 40 (February 16, 2018) - A Cloud Emerges Above the Oversold Bounce - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"AT40 = 32.8% of stocks are trading above their respective 40-day moving averages (DMAs) AT200 = 49.5% of stocks are trading above their respective 200DMAs VIX = 19.5 Short-term Trading Call: cautiously bullish (downgrade from bullish &#8211; see below for more details) Commentary The trading contours in the aftermath of an oversold episode can move ... 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see below for more details) Commentary The trading contours in the aftermath of an oversold episode can move ... 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