{"id":48258,"date":"2019-05-19T11:37:17","date_gmt":"2019-05-19T18:37:17","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=48258"},"modified":"2019-05-19T12:01:45","modified_gmt":"2019-05-19T19:01:45","slug":"t2108-update-190517","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2019\/05\/19\/t2108-update-190517\/","title":{"rendered":"Bearish Resistance Won the Week Against Major Indices – More Churn Ahead: Above the 40 (May 17, 2019)"},"content":{"rendered":"\n

AT40<\/strong> = 42.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200<\/strong> = 46.4% of stocks are trading above their respective 200DMAs
VIX<\/strong> = 16.0
Short-term Trading Call<\/strong>: neutral<\/p>\n\n\n\n

Stock Market Commentary<\/strong><\/h2>\n\n\n\n

A day after the major indices flipped from bullish support to bearish resistance<\/a>, buyers rallied these indices through resistance. It was a tenuous victory given the fade from the day’s highs. On Friday, the stock market opened with a gap down below support, and sellers were able to quash a fresh rally attempt. The end result is a stock market that closed the week in bearish position. Yet it is unclear whether sellers actually have the upper hand given the distinct recovery from Monday’s gap lower.<\/p>\n\n\n\n

\"The
The S&P 500 (SPY) is pivoting around its 50DMA as manic indecision takes hold in the market.<\/figcaption><\/figure><\/div>\n\n\n\n

The NASDAQ (NDX) looks more ready to reverse the rally from Monday’s gap down: the tech-laden index completely reversed Thursday’s gains and then some.<\/p>\n\n\n\n

\"The
The NASDAQ (NDX) lost 1.0% as it slipped under 50DMA support and reversed all of Thursday’s gains<\/figcaption><\/figure><\/div>\n\n\n\n

The latest breakdown of the iShares Russell 2000 ETF (IWM) looks much more serious than the 50DMA slips of the S&P 500 and the NASDAQ. IWM never closed over its 50 or 200 DMAs. The small cap index faded notably from intraday highs both Thursday and Friday. IWM essentially confirmed resistance at its moving averages. I took a chance on riding my IWM call options into Friday’s expiration given the 3-day rally from Monday’s low. The gap down and 1.4% loss wiped out that position. I did not renew it, and there is little point in trading IWM from the long side until it can overcome resistance (or of course it hits some oversold level).<\/p>\n\n\n\n

\"The
The iShares Russell 2000 ETF (IWM) is losing its battle with 50\/200DMA resistance. A new low for May would likely trigger a much steeper sell-off.<\/figcaption><\/figure><\/div>\n\n\n\n

The volatility index (VIX) imploded for three straight days after Monday’s surge. The volatility faders hit a wall on Friday as the VIX bounced back from a breach of its 15.35 pivot. I ended the week with put options on Ultra VIX Short-Term Futures ETF (UVXY). I decided to focus on fading volatility spikes as a hedge against my on-going short positions. I was very tempted to buy calls given the VIX looks ready for a fresh spike higher.<\/p>\n\n\n\n

\"The
The volatility index (VIX) stopped short of closing below the 15.35 pivot. Now it looks ready to rebound once more.<\/figcaption><\/figure><\/div>\n\n\n\n

AT40 (T2108)<\/a>, the percentage of stocks trading above their respective 40DMAs, closed on Monday at a 4-month low and traded as low as 32.9%. The rebound from that low is characteristic of bull markets where the 30%s is “low enough” to act as oversold; at that point a lot of stocks look attractive to bargain hunters and dip buyers. AT40 closed the week at 42.1% and is likely headed right back to the 30%s this week given the technical picture on the indices.<\/p>\n\n\n\n

The Trade War<\/strong><\/h2>\n\n\n\n

Trade war headlines dominated the action in the stock market last week. China ratcheted up its rhetoric and actions in defiance of the U.S., and the U.S. continued to provide reassurances while at the same time increasing the penalties on China for refusing to cooperate. It is a wonder there are still so many who seem to have confidence that the trade war will find a resolution any time soon. Apparently farmers believed the trade war was winding down last week until President Trump’s Sunday tweets announcing tariff hikes.<\/p>\n\n\n\n

In the wake of the trade war escalation, Marketplace produced a segment on May 10th called “Farmers hoped for a trade deal. Instead, tariffs went up<\/a>“. The interview featured Brian Duncan, Vice President of the Illinois Farm Bureau. He expressed earlier hopes that the trade war was coming to an end. Referring to farmers in general, Duncan lamented “we needed a win.” He described dairy farmers who are going under and grain farmers who are buckling under the pressures of the trade war. He further stressed “everyone is very nervous…we are in desperate need.”<\/p>\n\n\n\n