{"id":44356,"date":"2018-06-25T01:04:33","date_gmt":"2018-06-25T08:04:33","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=44356"},"modified":"2018-06-25T01:10:10","modified_gmt":"2018-06-25T08:10:10","slug":"t2108-update-180622","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/06\/25\/t2108-update-180622\/","title":{"rendered":"Above the 40 (June 22, 2018) – Stock Market Bears Increase the Pressure"},"content":{"rendered":"

AT40<\/strong> = 63.1% \u0192of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200<\/strong> = 54.7% of stocks are trading above their respective 200DMAs (a 4-month high)
\nVIX<\/strong> = 13.8
\nShort-term Trading Call<\/strong>: bearish<\/p>\n

Commentary<\/strong>
\nIn my last Above the 40 post<\/a>, I described how growing global trade wars are creating widening divergences in the stock market. I pointed out how the S&P 500 (SPY) sat right in the middle of two important market markers. Somehow taking the mantle of “safety trades”, a soaring tech market and a large contingent of small caps sit at the top. At the bottom are economically sensitive stocks like financials, industrials, home builders and others that continue to lag and sell-off. On balance, I thought it made sense to stay short-term bearish. The trading action over the last two days validated my bearish stance as small caps and tech finally sustained a tumble deep enough to matter.<\/p>\n


\n
\"The<\/a>
The NASDAQ immediately reversed what was a promising breakout to a new all-time high.<\/figcaption><\/figure><\/p>\n

\"The<\/a>
The Invesco QQQ Trust (QQQ) followed the NASDAQ’s lead with a very slight bounce just above uptrending 20DMA support.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Given the uptrending 20-day moving average (DMA) has held for almost two months for tech, I will treat a break of that trendline as an important confirmation of a deepening bearish shift in the stock market. Still, one step at a time.<\/p>\n

The 20DMA is already critically important for the S&P 500 (SPY). The index struggled to stay above this trendline all last week with two bounces from support, including Friday’s gain that well out-performed tech. A breakdown immediately puts the uptrending 50DMA support in play.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) is barely levitating above critical 20DMA support.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Financials continue to struggle. The Financial Select Sector SPDR ETF (XLF) is clinging to its closing lows for the year.<\/p>\n


\n
\"The<\/a>
The Financial Select Sector SPDR ETF (XLF) has bounced off its lows for 4 months. With 3 200DMA breakdowns in place, how much longer can XLF hang in there?<\/figcaption><\/figure>
\n<\/center><\/p>\n

The Industrial Select Sector SPDR ETF (XLI) managed to eke out a gain on Friday in what looks like a relief bounce. Sellers were otherwise persistent for most of the week as a fresh 200DMA breakdown received technical confirmation. A new 2018 low would be particularly bearish. On the flip side. I will treat a new 200DMA breakout as short-term bullish in anticipation of the same kind of relief bounce that occurred last month.<\/p>\n


\n
\"The<\/a>
The Industrial Select Sector SPDR ETF (XLI) is struggling almost as much as financials. This latest 200DMA breakdown is bearish but not dangerous until a new 2018 low happens.<\/figcaption><\/figure>
\n<\/center><\/p>\n

When I was last bullish<\/a>, I claimed that the broad-based buying of beaten up stocks confirmed a fresh bullish streak in the market. Consumer Staples Select Sector SPDR ETF (XLP) was of prime interest. I dropped my interest once I turned bearish, but XLP surprisingly continues to creep higher. Perhaps a larger rotation is underway that I will only be able to appreciate fully after it has run its course. If I were still bullish, I would consider taking a swing on XLP (or some of its components) with tight stops under key support levels. XLP confirmed 50DMA support and is benefiting from an uptrending 20DMA.<\/p>\n


\n
\"The<\/a>
The Consumer Staples Select Sector SPDR ETF (XLP) is in a world of its own as it continues to rally off its May low. XLP even looks poised to test its 200DMA downtrend.<\/figcaption><\/figure>
\n<\/center><\/p>\n

AT40 (T2108)<\/a>, the percentage of stocks trading above their respective 40DMAs, churned all week above the 60% level. It has yet to add further confirmation to my bearish call, but my favorite technical indicator is not helping the bullish case either. On the other hand, the volatility index, the VIX, is adding “reluctant” confirmation to my bearish call. The VIX came to life this week, but Thursday was the only day fear could keep the VIX aloft near its high for the day. The VIX lost 5.8% on Friday (VIX faders back on the case!).<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, looks like it is carving out a bottom around the 12 level. It still needs to hold above the 15.35 pivot to confirm a sustained increase in fear in the market.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Despite the VIX’s resurgence this week, I did not profit from my tranches of call options on ProShares Ultra VIX Short-Term Futures (UVXY). I made a specific choice to hold them through the end of the week for hedges. For the next round, I will return to selling these calls whenever the VIX spikes higher.<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, came alive last week. Twelve looks like good support now.<\/figcaption><\/figure>
\n<\/center> <\/p>\n

The bears scored a rare weekly victory on balance. Accordingly, I swung my short-term trades more decidedly to the bearish side of the ledger by the end of the week including some key fades.<\/p>\n

CHART REVIEWS<\/strong><\/p>\n

Axovant Sciences<\/strong> (AXON)
\nAXON has experienced a wild June. I am glad I sold the first massive pop<\/a> even though I far from maximized my profits. The stock has sold off nearly non-stop since a gap and crap took it above and then back below its downtrending 200DMA. A presentation at the JMP Life Science Conference on Thursday<\/a> was clearly not enough to dissuade the sellers.<\/p>\n

I continue to check on AXON for a fresh buying signal. The current rate of descent suggests the buyers may not show again until the the big gap up on June 6th fills. Perhaps the 50DMA will serve as a sufficient resting stop. <\/p>\n


\n
\"The<\/a>
The trading in Avoxant Sciences (AXON) has turned extremely manic. At one point AXON was up 6x from its lows. It is now down almost 2\/3 from that high point.<\/figcaption><\/figure>
\n<\/center><\/p>\n

BHP Billiton<\/strong> (BHP)
\nFading BHP is paying off again. I faded it again on Friday as it stalled against 50DMA resistance. If I get the opportunity before another swift downdraft, I will increase the position at the downtrending 20DMA. At some point in the next month or two, I am expecting BHP to test uptrending 200DMA support. <\/p>\n


\n
\"BHP<\/a>
BHP Billiton (BHP) had a wild week: it started with two gap downs and ended with a gap up that took BHP to flat for the week.<\/figcaption><\/figure>
\n<\/center><\/p>\n

United States Oil<\/strong> (USO)
\nOil spiked on Friday despite promises of a supply boost from OPEC<\/a>. This gain likely helped boost BHP. <\/p>\n

This is not the kind of inflation that signals good news for the world economy. In fact, the last thing the economy needs is higher oil prices in the face of rising trade tensions with the U.S.<\/p>\n


\n
\"The<\/a>
The United States Oil (USO) gained 5.3% and broke through 50DMA resistance.<\/figcaption><\/figure>
\n<\/center><\/p>\n

iShares Silver Trust<\/strong> (SLV)
\nI am not sure whether oil also had an effect on precious metals, but it may have helped SLV defend the lower part of a 4+ month trading range that itself is trapped within a much larger 18-month trading range. With SPDR Gold Shares (GLD) only gaining 0.2% versus SLV’s 0.9% my latest pairs trade with SLV calls and GLD puts got off to a great start. <\/p>\n


\n
\"The<\/a>
The iShares Silver Trust (SLV) bounced near perfectly off the lower part of its trading range.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Global X Robotics & Artfcl Intllgnc ETF<\/strong> (BOTZ)
\nBOTZ is an interesting ETF that includes a host of international tech stocks. BOTZ’s top component is Nvidia (NVDA) (10.2% of the index), a stock I like to trade on the dips. I bought again as NVDA took a hard tumble to end the week along with the general tech sell-off. I was quite surprised to see BOTZ held its ground on Friday, but even MORE surprised to see the ETF is on the edge of a major, and a very bearish, breakdown. BOTZ hit an 8-month low last week before bouncing back sharply. Note how BOTZ has significantly lagged the S&P 500 and especially the NASDAQ. <\/p>\n


\n
\"Did<\/a>
Did Global X Robotics & Artfcl Intllgnc ETF (BOTZ) make a bottoming hammer pattern last week or was it the last gasp of buyers before BOTZ suffers a major breakdown that further confirms the violation of 50 and 200DMA supports?<\/figcaption><\/figure>
\n<\/center><\/p>\n

Caterpillar<\/strong> (CAT)
\nCAT had a rough week that included a 200DMA breakdown and a near 6-month low. Post-earnings weakness is re-established for CAT. I will plan to fade CAT on strength. I should have entered last week already short (put options) on CAT.<\/p>\n


\n
\"Caterpillar<\/a>
Caterpillar (CAT) is right back in bearish position with a 200DMA breakdown confirmed with a new post-earnings low.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Intel<\/strong> (INTC)
\nINTC broke down below its 50DMA to start the week and triggered some call option buying on my strategy to buy INTC dips between earnings. The move looked great for a hot minute when INTC broke out above its 50DMA. Sellers ended the breakout quickly after belatedly deciding the resignation of the CEO<\/a> (more like the company gave him the opportunity to step down = fired) was bad news. The stock looks like it is trying to hold the lows of the week, but I am not optimistic.<\/p>\n


\n
\"Intel<\/a>
Intel (INTC) may be breaking out with a double drop below its 50DMA.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Carmax<\/strong> (KMX)
\nI would be remiss if I failed to post the incredibly bullish, post-earnings chart of KMX. I have long stood as bearish against the stock and the company. This chart makes me officially stand down! KMX bounced back sharply from an April post-earnings gap down, pulled back again, and then took off with a purpose into this latest earnings report. The stock is of course very extended now, but this pattern is about as bullish as it gets.<\/p>\n


\n
\"Carmax<\/a>
Carmax (KMX) broke out to a 12.9% post-earnings gain and a new all-time high.<\/figcaption><\/figure>
\n<\/center> <\/p>\n

RedHat<\/strong> (RHT)
\nThe poor reaction to RHT’s earnings announcement likely set the tone for tech weakness on Friday. RHT dropped a whopping 14.2% as buyers failed to sustain a comeback from the open. RHT has not traded below its 200DMA since January or February 2017, so I will be watching closely to see how the market, especially for tech, copes with such a bearish development. Jim Cramer of CNBC’s Fast Money took time out to interview the CEO and gave him a chance to explain why this drop is just another buying opportunity.<\/p>\n

From a technical standpoint, RHT is a broken stock until proven otherwise. Not only does RHT have a pending rendezvous with 200DMA support, but also the stock now trades below the low from March’s earnings which delivered a bearish gap and crap. Two bearish post-earnings reactions in a row for a high-flying tech stock is bad news and makes RHT a “show me” stock.<\/p>\n


\n