{"id":43435,"date":"2018-04-14T17:44:04","date_gmt":"2018-04-15T00:44:04","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=43435"},"modified":"2018-04-15T15:52:58","modified_gmt":"2018-04-15T22:52:58","slug":"t2108-update-180413","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/04\/14\/t2108-update-180413\/","title":{"rendered":"Above the 40 (April 13, 2018) – The Bears Engulf An Otherwise Uplifting Week for the Stock Market"},"content":{"rendered":"

AT40<\/strong> = 45.9% of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200<\/strong> = 44.0% of stocks are trading above their respective 200DMAs
\nVIX<\/strong> = 17.4
\nShort-term Trading Call<\/strong>: neutral<\/p>\n

Commentary<\/strong>
\nThe S&P 500 (SPY) gained 2.0% for the week. Yet the week felt<\/strong> like a loser given the way it ended. The S&P 500 dropped marginally on Friday, just 0.3%, but the close represented a fade from a gain and a near test of downtrending resistance at the 50-day moving average (DMA). <\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) melted in the face of 50DMA resistance as a Bollinger Band (BB) squeeze starts to form.<\/figcaption><\/figure>
\n<\/center><\/p>\n

That sinking feeling really came from the financials. Several big banks reported earnings. JP Morgan (JPM) and Citigroup (C) came out the gate strong with gaps up. While Citigroup rammed right into resistance at its downtrending 50DMA, JPM seemed to confirm the previous day’s 50DMA breakout. Sellers took over from there for the rest of the day. Wells Fargo (WFC) gapped DOWN at the open and ended the day with a 3.4% loss and a new 7-month low. The end result for the Financial Select Sector SPDR ETF (XLF) was a bearish engulfing pattern that started with a gap up to unyielding declining 50DMA resistance. I cannot see anything better than more churn ahead with the financials failing this important test of earnings season. My XLF calls went from near even to slashed in half. I only held on to see whether the financial earnings in the coming week can help salvage things.<\/p>\n


\n
\"The<\/a>
The Financial Select Sector SPDR ETF (XLF) is stuck between slowly converging resistance from its 50DMA and support from its 200DMA. The bearish engulfing print warns of a negative outcome of the convergence.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The main positive from XLF is that, so far, it is surviving the critical test presented from the March 23rd plunge toward 200DMA support<\/a> that practically stopped on a dime.<\/p>\n

Tech stocks also suffered a bearish engulfing end to the week that confirmed powerful resistance at declining 50DMAs. Unlike XLF, the NASDAQ and the PowerShares QQQ ETF (QQQ) are still trading above the big up day on April 4th that seemed to confirm 200DMA support. In fact, an uptrend from those lows remains in place and a distinct V-pattern can provide some hope to bulls that a breakthrough can still happen in the near future.<\/p>\n


\n
\"The<\/a>
The NASDAQ still has upward momentum from its test of 200DMA support despite the setback at 50DMA resistance.<\/figcaption><\/figure><\/p>\n

\"The<\/a>
The PowerShares QQQ ETF (QQQ) is in the same boat with the NASDAQ.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Small-caps are in the best position. A bearish engulfing pattern did not tank the iShares Russell 2000 ETF (IWM) back below its 50DMA.<\/p>\n


\n
\"The<\/a>
The iShares Russell 2000 ETF (IWM) made a bullish breakout this week. A bearish engulfing conclusion to the week may have brought that bullish move to an end for now.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The big surprise of the day was the volatility index, the VIX. Even with the fade underway across the stock market AND despite going into a weekend full of geo-political uncertainty over Syria and the political uncertainty around the latest round of “Trump versus Comey,” the VIX could not hold traction. The VIX lost 5.9%, closed at its low of the day, and finally confirmed the reversal of the surge on March 22nd. When the VIX bounced early in the day, I decided to take profits on my short in iPath S&P 500 VIX ST Futures ETN (VXX). I assumed that I would be able to short again at a higher price later in the day or on Monday. Now I am not so sure. (I still see VXX eventually returning to its all-time low and beyond, so I see great risk\/reward here). Still wary, I decided to load up on call options on ProShares Ultra VIX Short-Term Futures (UVXY) at the end of the day. <\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, went into the weekend limping and burdened by the growing pressure of a downward bias.<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The iPath S&P 500 VIX ST Futures ETN (VXX) may have finally topped out but still has a ways to go to reverse the big surge from the VIX’s largest percentage gain ever.<\/figcaption><\/figure>\n

\"The<\/a>
The ProShares Ultra VIX Short-Term Futures (UVXY) has failed multiple times at its declining 200DMA resistance. It closed below its now sharply increasing 50DMA for the first time in over 2 months.<\/figcaption><\/figure>
\n<\/center><\/p>\n

And then there is the currency market. Remarkably, the currency market seems relatively unconcerned with the chop in the stock market. The Australian dollar (FXA) versus the Japanese yen (FXY) has powered higher since its March low. AUD\/JPY surged the last two days and even broke out above declining 50DMA resistance. Like the stock market, AUD\/JPY ended the week with a big fade. I was tempted, but I avoided reshorting the currency pair. I see no point in using it as a hedge at this juncture. Instead, I will wait to short into weakness, like a fresh (confirmed) breakdown below its 50DMA.<\/p>\n


\n
\"AUD\/JPY<\/a>
AUD\/JPY survived a test of its 2017 lows, but has the rally come to a screeching halt with the bearish fade to end the week?<\/figcaption><\/figure>
\nSource: TradingView.com<\/a><\/strong>
\n<\/center><\/p>\n

Finally, there is AT40 (T2108), the percentage of stocks trading above their respective 40DMAs. AT40 closed the week at 45.9%. At its high, AT40 matched the high from March, its highest point since the big bounce from February’s oversold conditions. So even with the bears making a strong statement to end the week, the market in general is still on the edge of a major, bullish breakthrough. One week after fighting off the barbarians posturing at critical 200DMA support<\/a>, the S&P 500 needs just one more spark to get its big breakthrough. If earnings season fails to provide this spark, look out for May…<\/p>\n


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