{"id":45757,"date":"2018-10-26T00:09:20","date_gmt":"2018-10-26T07:09:20","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=45757"},"modified":"2018-10-28T21:54:17","modified_gmt":"2018-10-29T04:54:17","slug":"t2108-update-181025","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/10\/26\/t2108-update-181025\/","title":{"rendered":"Above the 40 (October 25, 2018) – Breadth Responds Poorly to Latest 1-Day Oversold Rally"},"content":{"rendered":"

{editing note 10\/28\/18 – this is a restored version of this post after I accidentally over-wrote it in preparing for the next edition of Above the 40}
\nAT40<\/strong> = 12.3% of stocks are trading above their respective 40-day moving averages (DMAs) – 7th day of oversold period following 4-day oversold period (as low as 10.3%)
\nAT200<\/strong> = 27.8% of stocks are trading above their respective 200DMAs
\nVIX<\/strong> = 24.2 (as low as 22.1)
\nShort-term Trading Call<\/strong>: bullish<\/p>\n

Commentary<\/strong>
\nThe stock market soared, but AT40 (T2108) and AT200 (T2107), respectively the percentage of stocks trading above their 40 and 200-day moving averages (DMAs), only gained a few percentage points and failed to reverse the previous day’s loss. This combination is a sign of just how much technical damage has been done to the market.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) gapped up and closed with a 1.9% gain but well off intraday highs.<\/figcaption><\/figure>
\n
Also note that the S&P 500’s 200DMA turned downward for the second straight day. As a reminder, this critical long-term trendline last declined on a daily basis in May, 2016.<\/p>\n
\"The<\/a>
The NASDAQ gapped up significantly and closed with a 3.0% gain but well off intraday highs.<\/figcaption><\/figure>\n

\"The<\/a>
The Invesco QQQ Trust (QQQ) gapped up significantly and closed with a 3.5% gain. More importantly, QQQ faded from 200DMA resistance.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The volatility index, the VIX, dropped just 4.0% after a rebound off its low. The fear gauge still looks poised to go higher before the next volatility implosion.<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, maintained its uptrend from the recent low with a rebound off its intraday low.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The currency markets are flashing new dangers in the form of the Australia dollar (FXA) versus the Japanese yen (FXY). Overnight, AUD\/JPY plunged and broke the important September low and hit a near 2-year low. At the time of writing, AUD\/JPY bounced just enough to recover that low. As a reminder, AUD\/JPY can provide an important tell on the market’s current risk tolerance<\/a>. Right now, it looks like that tolerance just got a lot lower.<\/p>\n


\n
\"AUD\/JPY<\/a>
AUD\/JPY plunged at one point to a near 2-year low while breaking through critical support from September.<\/figcaption><\/figure>
\nSource: Trading View<\/a><\/strong>
\n<\/center><\/p>\n

Focusing on the bullish opportunities is still paying off with call options on SPY. I expected to hold the two tranches I bought into Wednesday’s sell-off until next week, but the S&P 500 soared enough to move me to take profits (in other words, I did not want to risk losing the profits to another swoosh lower that fades the day’s strong rally). I will continue to exercise oversold trading rules<\/a> in buying SPY call options (essentially buying when the S&P 500 plunges along with a surge\/spike in volatility).<\/p>\n

With the oversold period stretched into essentially 11 days, the second derivative of the stock market<\/a> is in full swing. As I prepare for a more extended oversold period of churn and 200DMA resistance levels holding firm, I am back to hedging in small bits. Per the strategy I laid out on Netflix (NFLX)<\/a>, I faded its rally today. I sold a call spread expiring Friday. With Alphabet (GOOG) and Amazon.com (AMZN) earnings pulling down big cap tech in after hours, it looks like my trade will work out. I also wanted to buy a calendar put spread on NFLX, but my order never filled. As another hedge, I bought a single put option on Goldman Sachs (GS) expiring Friday. To avoid swinging myself to the bearish side, I added call options on Splunk (SPLK) expiring next week. <\/p>\n

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

Apple<\/strong> (AAPL)
\nAAPL is still the north star for tech stocks. The calamity in the rest of the market has yet to hit AAPL much. With earnings next week, I was bracing for a major test for the stock and the rest of the stock market. The poor response to GOOG and AMZN earnings may deliver the test ahead of schedule.<\/p>\n


\n
\"Apple<\/a>
Apple (AAPL) continued its pivot around its 50DMA as it holds a trading range.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Align Technology<\/strong> (ALGN)
\nALGN collapsed in the wake of its earnings on extremely high trading volume (a 16-month high). The loss of 20.2% took ALGN to an 8-month low. In less than a month, ALGN lost its entire gain for 2018. This kind of punishment for high-flying, high valuation stocks is more technical damage to add to the growing carnage.<\/p>\n


\n
\"Align<\/a>
Align Technology (ALGN) confirmed its 200DMA breakdown with a post-earnings gap down and a 20.2% loss.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Goldcorp<\/strong> (GG)
\nGG took me aback with a 18.7% post-earnings loss that took the stock all the way back to early 2002 levels. My whole experience on miners has taught me to just stick with the yellow metal itself. The miners just add unnecessary operational risk. I am dumping my position soon. When (if?) the stock closes this post-earnings gap down, I will reconsider my positioning.<\/p>\n


\n
\"Goldcorp<\/a>
Goldcorp (GG) lost 18.7% on a massive post-earnings loss. The stock is at a 16+ year low.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Meritage Homes<\/strong> (MTH)
\nMTH reported earnings on the right day. The stock received some serious tailwinds to the tune of a 9.5% gain. The next test for the stock is resistance from its steeply downtrending 20DMA. If sentiment is truly turning around, buyers will soon slice right through this resistance. Otherwise, it will be back to the same ol’ fade.<\/p>\n


\n
\"Meritage<\/a>
Meritage Homes (MTH) soared 9.5% post-earnings. The stock closed with a small fade from the downtrending 20DMA.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Oreilly Automotive<\/strong> (ORLY)
\nORLY printed an intriguing pattern going into earnings. It slowly sagged as its 20 and 50DMAs converged. The stock dropped 5.1% ahead of earnings and gapped down following earnings. This trading action looks too much like topping action, so this is a dip I will NOT buy this time around.<\/p>\n


\n
\"Oreilly<\/a>
Oreilly Automotive (ORLY) sagged into earnings and barely closed flat after a strong fade from post-earnings highs.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Tesla<\/strong> (TSLA)
\nAnother week, another whacky set of events for TSLA. While the stock market sank this week, TSLA soared. A dramatic pop of 14.2% occurred on the heels of TSLA announcing it would deliver earnings a week earlier than originally planned. Even Citron caught on to the bullish implications.<\/p>\n

<\/p>\n
\n

$TSLA<\/a> dropping earnings on top of $F<\/a> tomorrow might be a bad sign for shorts. After reviewing all recent info on $TSLA<\/a> dominating its categories, Citron is LONG Telsa for this quarter. Full report https:\/\/t.co\/eZLSbtL0kg<\/a><\/p>\n

— Citron Research (@CitronResearch) October 23, 2018<\/a><\/p><\/blockquote>\n