{"id":59340,"date":"2022-03-29T22:39:33","date_gmt":"2022-03-30T05:39:33","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=59340"},"modified":"2022-03-30T01:04:39","modified_gmt":"2022-03-30T08:04:39","slug":"latest-oversold-cycle-powers-up-for-potential-climax-the-market-breadth","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2022\/03\/29\/latest-oversold-cycle-powers-up-for-potential-climax-the-market-breadth\/","title":{"rendered":"The Latest Oversold Cycle Powers Up for a Potential Climax – The Market Breadth"},"content":{"rendered":"\n

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

Forget recession fears<\/a>. Forget an aggressively hawkish Fed<\/a>. Forget the stock chart holdouts<\/a>. Bullish belief delivered another powerful confirmation of what has become an exceptionally strong bounce from March’s nervous test of the last oversold point<\/a>. The rally launched from the March lows and barely rested or paused. The rally has been the very definition of indefatigable<\/a> trading. Each index took its own path, but the rally narrative has been surprisingly consistent thanks to the leadership of the S&P 500. However, overbought conditions now loom for the stock market just as headlines about Russia’s invasion of Ukraine take on increasingly encouraging tilts<\/a>. Market breadth and the currency market point to a potential climax around the corner. A potential climax is not necessarily a time to get bearish, but it is a time to get more wary. The rules of trading market breadth<\/a> return to my spotlight.<\/p>\n\n\n\n

The Stock Market Indices<\/strong><\/h2>\n\n\n\n

The S&P 500 (SPY) is suddenly only down 2.8% for the year. The index has enjoyed 9 out of the 11 trading days planted firmly in positive territory. During this time, the S&P 500 sliced through resistance at its 50-day moving average (DMA) (the red line below) and used its 200DMA (the blue line below) as a fresh launching pad. Contrary to my expectations, the index did not even pause for a rest at the double peaks in February. I took profits on my $450\/$455 SPY call spread expiring next week and held my April $360\/$370 call spread. I see a potential climax featuring an S&P 500 making a run at its all-time high.<\/p>\n\n\n\n

\"The<\/a>
The S&P 500<\/a> (SPY) gapped higher and did not stop until it closed with a 1.2% gain. The index is now only down 2.8% for the year!<\/em> <\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

The NASDAQ (COMPQX) also slipped right by its February double peak. The tech-laden index has chopped a little more than the S&P 500, but its run-up is just as impressive. Recall that the NASDAQ was suffering in bearish territory before this rally began in earnest. Now, the NASDAQ is toying with overhead resistance at its 200DMA. I chose not to wait for the resolution of this critical moment and took profits on a $360\/$370 April call spread. I swapped in April $71 call options on the Communication Services Select Sector SPDR Fund (XLC). XLC is a more conservative play on big-cap tech names. Accordingly, I figure it can weather a potential climax better than QQQ. XLC gained 1.7% on a 50DMA breakout.<\/p>\n\n\n\n

Notably, QQQ cleared 200DMA resistance. However, I continue to take cues on tech from the NASDAQ. A 200DMA breakout would usher in a fresh wave of bullishness for tech stocks. Such a phase could make the potential climax particularly explosive to the upside before buyer’s exhaustion finally appears. My trades left behind a rapidly fading hedge in an April $350\/$340 QQQ put spread.<\/p>\n\n\n\n

\"The<\/a>
The NASDAQ<\/a> (COMPQX) soared 1.8% and stopped just short of challenging overhead resistance at its 200DMA.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

At the end of last week, I concluded that the iShares Russell 2000 ETF (IWM) was growing a new trading range. I prepared to take minimal profits on my April $202\/$207 call spread. A swift gap up and 2.7% gain made my position look far too conservative. I took profits on the call spread given I have little else to gain and a lot to lose between here and expiration. Maybe a potential climax can take IWM to a critical test of 200DMA resistance before buyer’s exhaustion sets in.<\/p>\n\n\n\n

\"The<\/a>
The iShares Russell 2000 ETF<\/a> (IWM) broke out to a 2-month high after soaring 2.7%.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n