{"id":53065,"date":"2020-05-19T01:35:15","date_gmt":"2020-05-19T08:35:15","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=53065"},"modified":"2020-06-09T01:07:03","modified_gmt":"2020-06-09T08:07:03","slug":"200518-t2108-update","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2020\/05\/19\/200518-t2108-update\/","title":{"rendered":"Stock Market Breaks Out to Overbought Territory Yet Again &#8211; Above the 40 (May 18, 2020)"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\"><strong>Stock Market Statistics<\/strong><\/h2>\n\n\n\n<p><strong>AT40<\/strong> = 75.0% of stocks are trading above their respective 40-day moving averages (DMAs) (first oversold day)<br><strong>AT200<\/strong> = 18.4% of stocks are trading above their respective 200DMAs<br><strong>VIX<\/strong> = 29.3<br><strong>Short-term Trading Call<\/strong>: neutral<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Stock Market Commentary<\/strong><\/h2>\n\n\n\n<p>Buyers followed through on the building momentum from the previous two trading days which drew <a href=\"https:\/\/drduru.com\/onetwentytwo\/2020\/05\/16\/t2108-update-200515\/\">a line the sand for buyers<\/a>. Buying was broad-based and pushed the stock market right back into contention for an extended overbought rally that would break right through the topping pattern from a week ago.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>The Stock Market Indices<\/strong><\/h3>\n\n\n\n<p>The S&amp;P 500 (SPY) soared 3.2% to put a challenge of 200DMA resistance right back into play. A 200DMA breakout should be very bullish. Note how the S&amp;P 500 has churned since its 50DMA breakout last month. I expect the 2019 close to present the next line of resistance after a 200DMA breakout.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_SP500-StandardsandPoors.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_SP500-StandardsandPoors.png\" alt=\"The S&amp;P 500 (SPY) jumped 3.2% and hit a new 2 1\/2 month high.\" class=\"wp-image-53061\"\/><\/a><figcaption>The S&amp;P 500 (SPY) jumped 3.2% and hit a new 2 1\/2 month high.<\/figcaption><\/figure><\/div>\n\n\n\n<br><script async=\"\" src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\n<ins class=\"adsbygoogle\" style=\"display:block; text-align:center;\" data-ad-layout=\"in-article\" data-ad-format=\"fluid\" data-ad-client=\"ca-pub-1196033822186410\" data-ad-slot=\"3478942445\"><\/ins>\n<script>\n     (adsbygoogle = window.adsbygoogle || []).push({});\n<\/script><br>\n\n\n\n<p>The NASDAQ (COMPQX) actually underperformed the S&amp;P 500 but remains in an even more bullish position. The NASDAQ now looks poised to make a run at its all-time high&#8230;and beyond.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_NASDAQ.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_NASDAQ.png\" alt=\"The NASDAQ (COMPQX) gained 2.4% and closed right where it first broke 50DMA support in February.\" class=\"wp-image-53060\"\/><\/a><figcaption>The NASDAQ (COMPQX) gained 2.4% and closed right where it first broke 50DMA support in February.<\/figcaption><\/figure><\/div>\n\n\n\n<p>The iShares Russell 2000 Index Fund ETF (IWM) came alive as it rocketed off a confirmation of 50DMA support. IWM was perhaps my biggest miss of the day given the clear bounce from converged support at the 50DMA and the close on Election Day, 2016. The rebound in IWM is also one of the clearest signs that the bulls are itching for a major refresh on the rally from the March lows.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_IWM.png\" alt=\"The iShares Russell 2000 Index Fund ETF (IWM) soared 6.1% as small caps recovered to recent highs.\" class=\"wp-image-53059\"\/><figcaption>The iShares Russell 2000 Index Fund ETF (IWM) soared 6.1% as small caps recovered to recent highs.<\/figcaption><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Volatility<\/strong><\/h3>\n\n\n\n<p>While the major indices made new (marginal) highs, the volatility index did not quite retest recent lows. Still, today&#8217;s decline reconfirms the downtrend in place since the March peak. It is getting harder and harder to believe that not long ago the VIX seemed headed straight to 100.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_VIX.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_VIX.png\" alt=\"The volatility index (VIX) lost 8.1% as it reconfirms the current downtrend.\" class=\"wp-image-53058\"\/><\/a><figcaption>The volatility index (VIX) lost 8.1% as it reconfirms the current downtrend.<\/figcaption><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Overbought<\/strong><\/h3>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"260\" height=\"260\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/04\/AboveThe40_AnimatedLogo.gif\" alt=\"Above the 40 (Animated Logo)\" class=\"wp-image-52522\"\/><figcaption><strong>Above the 40 logo created by <a rel=\"noreferrer noopener\" href=\"https:\/\/www.youtube.com\/channel\/UCym5lQ1OMbieC72xWJ_IIJQ\" target=\"_blank\">WaffleStew<\/a><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n<p><a href=\"https:\/\/drduru.com\/onetwentytwo\/t2108-resource-page\/\">AT40 (T2108)<\/a>, the percentage of stocks trading above their respective 40DMAs, crossed into overbought territory for the third time in less than a month (above 70%). While the last dip from overbought conditions was bearish, the stubborn persistence of buyers in creating overbought conditions increases the odds, in my opinion, of an extended overbought rally. All the market needs is confirmation from a 200DMA breakout from the S&amp;P 500.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>The Short-Term Trading Call<\/strong><\/h3>\n\n\n\n<p>There is still no change in the short-term trading call. Even if an extended rally unfolds, I will stick to neutral until the S&amp;P 500 confirms a 200DMA breakout. At that point, I will consider going to cautiously bullish depending on other conditions. This &#8220;caution&#8221; is the mirror image of my refusal to flip to bearish until sellers could punch a hole through 50DMA support&#8230;they failed.<\/p>\n\n\n\n<p>Tony Dwyer from Canaccord made another appearance on CNCB&#8217;s Fast Money. I am fascinated to see someone so steeped in the fundamentals gradually shift his market read based on price action and technicals. Dwyer made a third change in his read of the market during this crash and recovery. Dwyer first insisted that <a href=\"https:\/\/drduru.com\/onetwentytwo\/2020\/04\/07\/t2108-update-200406\/\">market psychology demanded a retest of the March lows<\/a>. When those lows seemed secure without the required retest, he created <a href=\"https:\/\/drduru.com\/onetwentytwo\/2020\/04\/20\/t2108-update-200420\/\">a higher floor for testing<\/a>. With the market moving right along without the next test and with the bulls banging on the gates, Dwyer is calling for a &#8220;frustration phase&#8221; where the market just goes nowhere. Once again, the Fast Money crew failed to cross-reference his previous calls so that people like me could better understand this process.<\/p>\n\n\n\n<figure class=\"wp-block-embed-twitter aligncenter wp-block-embed is-type-rich is-provider-twitter\"><div class=\"wp-block-embed__wrapper\">\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\"><p lang=\"en\" dir=\"ltr\">The market could be in &quot;frustration&quot; mode for a long while, warns <a href=\"https:\/\/twitter.com\/dwyerstrategy?ref_src=twsrc%5Etfw\">@dwyerstrategy<\/a> of Canaccord Genuity. Here&#39;s what he sees ahead for stocks. <a href=\"https:\/\/t.co\/ksjG6mXwC2\">pic.twitter.com\/ksjG6mXwC2<\/a><\/p>&mdash; CNBC&#39;s Fast Money (@CNBCFastMoney) <a href=\"https:\/\/twitter.com\/CNBCFastMoney\/status\/1262492974350569483?ref_src=twsrc%5Etfw\">May 18, 2020<\/a><\/blockquote><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Stock Chart Reviews &#8211; Below the 50DMA<\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>United States Oil Fund<\/strong> (USO)<\/h3>\n\n\n\n<p>I keep waiting and waiting for oil to bottom. I have made a few untimely bets on previous presumed bottoms. With a small base in place and a breakout above a key technical level, United States Oil Fund (USO) finally looks ready for a real bottom. I am looking to play for a test of declining 50DMA resistance.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_USO-United-States-Oil-Fund.png\" alt=\"The United States Oil Fund (USO) gained 8.6% and closed above its 2009 low for the first time in a month.\" class=\"wp-image-53062\"\/><figcaption>The United States Oil Fund (USO) gained 8.6% and closed above its 2009 low for the first time in a month.<\/figcaption><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Stock Chart Reviews &#8211; Above the 50DMA<\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>D.R. Horton<\/strong> (DHI)<\/h3>\n\n\n\n<p>Home builders are taking me by surprise. They had a HUGE day today. D.R. Horton (DHI) was one of three builders I follow with key breakouts. I already want to write a follow-up to <a href=\"https:\/\/drduru.com\/onetwentytwo\/2020\/05\/10\/housing-market-review-april-2020\/\">my last Housing Market Review<\/a>! I cannot wait for the next read on home builder sentiment. I will be looking for a big jump to confirm all the increasingly positive sentiment I have been reading in every single earnings report since late March.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_DHI-DR-Horton.png\" alt=\"D.R. Horton (DHI) soared 10.0% and broke 200DMA resistance.\" class=\"wp-image-53056\"\/><figcaption>D.R. Horton (DHI) soared 10.0% and broke 200DMA resistance.<\/figcaption><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Lennar<\/strong> (LEN)<\/h3>\n\n\n\n<p>Home builder Lennar (LEN) also had a key 200DMA breakout just waiting for confirmation from a higher close.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_LEN-Lennar.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_LEN-Lennar.png\" alt=\"Lennar (LEN) jumped 11.8% and broke through 200DMA resistance.\" class=\"wp-image-53057\"\/><\/a><figcaption>Lennar (LEN) jumped 11.8% and broke through 200DMA resistance.<\/figcaption><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Slack Technologies<\/strong> (WORK)<\/h3>\n\n\n\n<p>Integrated digital messaging service Slack Technologies (WORK) invalidated its recent breakout with a 7.4% decline. On a day where the market was looking forward to a return to &#8220;normalcy&#8221;, the stocks that represent the new digital economy took a backseat. I want to use all such moments as potential buying opportunities,. The new digital economy is coming, growing, and pretty much inevitable for the more robust world we need in the future.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_WORK-Slack-Technologies.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_WORK-Slack-Technologies.png\" alt=\"Slack Technologies (WORK) pulled back 7.4% and invalidated its prior breakout.\" class=\"wp-image-53063\"\/><\/a><figcaption>Slack Technologies (WORK) pulled back 7.4% and invalidated its prior breakout.<\/figcaption><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Stock Chart Reviews &#8211; <a href=\"https:\/\/swingtradebot.com\/events\/5-crossed-above-200-dma\/equities?selected_date=2020-05-15\" target=\"_blank\" rel=\"noreferrer noopener\">Bullish Breakout<\/a><\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Palo Alto Networks<\/strong> (PANW)<\/h3>\n\n\n\n<p>Despite a day of bullish breakouts, cybersecurity software company Palo Alto Networks (PANW) only managed a relatively modest 1.5% gain. I featured PANW for today&#8217;s breakout special because PANW already confirmed its breakout last week. Now the stock is riding a steady uptrend. As with all such breakouts, the bullish move gets invalidated by a close under the 200DMA. I moved into a weekly call spread at the $240 strike as a first swing at riding the trend in short-term. I will look at buying shares starting next week if the breakout continues to hold.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_PANW-Palo-Alto-Networks.png\"><img loading=\"lazy\" decoding=\"async\" width=\"550\" height=\"375\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2020\/05\/200518_PANW-Palo-Alto-Networks.png\" alt=\"Palo Alto Networks (PANW) gained 1.5% and further confirmed its 200DMA breakout.\" class=\"wp-image-53064\"\/><\/a><figcaption>Palo Alto Networks (PANW) gained 1.5% and further confirmed its 200DMA breakout.<\/figcaption><\/figure><\/div>\n\n\n\n<p>&#8212; &#8211; &#8212;<br>\n<\/p>\n\n\n\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\" rel=\"noopener noreferrer\">email<\/a>, <a href=\"https:\/\/stocktwits.com\/DrDuru\" target=\"_blank\" rel=\"noopener noreferrer\">StockTwits<\/a>, <a href=\"https:\/\/twitter.com\/DrDuru\" target=\"_blank\" rel=\"noopener noreferrer\">Twitter<\/a>, and even <a href=\"https:\/\/www.instagram.com\/drduru_market_breadth\/\" target=\"_blank\" rel=\"noopener noreferrer\">Instagram<\/a>!<\/strong><br>\n<\/center>\n\n\n\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 rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.worden.com\/CURRENTAFPROMO.aspx?AFCODE=866\" target=\"_blank\">Worden<\/a>. Learn more about T2108 on my <a href=\"https:\/\/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\n\n\n<p><strong>Active AT40 (T2108) periods<\/strong>: Day #25 over 20%, Day #19 over 30%, Day #17 over 40%, Day #16 over 50%, Day #3 under 60%, Day #1 over 70% (1st overbought day ending 4 days under 70%)<\/p>\n\n\n\n<center><br>\n<strong>Daily AT40 (T2108)<\/strong><br>\n<figure><a href=\"https:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\"><img loading=\"lazy\" decoding=\"async\" title=\"T2108 (DAILY)\" src=\"https:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\" alt=\"\" width=\"500\" height=\"350\"><\/a><\/figure><p><\/p>\n<p>Black line: AT40 (T2108) (% measured on the right)<br>\nRed line: Overbought threshold (70%); Blue line: Oversold threshold (20%)<br>\n<\/p><\/center>\n\n\n\n<center><br>\n<strong>Weekly AT40 (T2108)<\/strong><br>\n<figure><a href=\"https:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\"><img loading=\"lazy\" decoding=\"async\" title=\"Weekly T2108\" src=\"https:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\" alt=\"Weekly T2108\" width=\"500\" height=\"350\"><\/a><\/figure><br>\n*<strong>All charts created using <\/strong><strong>FreeStockCharts<\/strong> unless otherwise stated<\/center>\n\n\n\n<p>The T2108 charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post <a href=\"https:\/\/drduru.com\/onetwentytwo\/tag\/t2108\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">click here<\/a>.<\/p>\n\n\n\n<p>Be careful out there!<\/p>\n\n\n\n<p><strong>Full disclosure<\/strong>: long SSO shares, long WORK and short calls, long QQQ calendar call spreads, long PANW calendar call spread<\/p>\n\n\n\n<p>*Charting notes: FreeStockCharts stock prices are not adjusted for dividends. TradingView.com charts for currencies use Tokyo time as the start of the forex trading day. FreeStockCharts currency charts are based on Eastern U.S. time to define the trading day.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stock Market Statistics AT40 = 75.0% of stocks are trading above their respective 40-day moving averages (DMAs) (first oversold day)AT200 = 18.4% of stocks are trading above their respective 200DMAsVIX = 29.3Short-term Trading Call: neutral Stock Market Commentary Buyers followed through on the building momentum from the previous two trading days which drew a line &#8230; <a title=\"Stock Market Breaks Out to Overbought Territory Yet Again &#8211; Above the 40 (May 18, 2020)\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2020\/05\/19\/200518-t2108-update\/\">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":[1303,482,199,219,35,377,490,1311,62],"tags":[1819,1003,1051,78,77,413,2405,1778,65,2416,362,226,2332,538,303,2415],"class_list":["post-53065","post","type-post","status-publish","format-standard","hentry","category-bottom","category-breakout","category-commodities","category-high-tech","category-housing","category-oil","category-overbought","category-software","category-technical-analysis","tag-at40","tag-dhi","tag-dr-horton-inc","tag-len","tag-lennar","tag-nasdaq","tag-palo-alto-networks","tag-panw","tag-sp-500","tag-slack-technologies","tag-spy","tag-t2108","tag-tony-dwyer","tag-uso","tag-vix","tag-work"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Stock Market Breaks Out to Overbought Territory Yet Again - Above the 40 (May 18, 2020) - 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\/2020\/05\/19\/200518-t2108-update\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stock Market Breaks Out to Overbought Territory Yet Again - Above the 40 (May 18, 2020) - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"Stock Market Statistics AT40 = 75.0% of stocks are trading above their respective 40-day moving averages (DMAs) (first oversold day)AT200 = 18.4% of stocks are trading above their respective 200DMAsVIX = 29.3Short-term Trading Call: neutral Stock Market Commentary Buyers followed through on the building momentum from the previous two trading days which drew a line ... 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