Above the 40 – Small Caps Almost Push Market Through the Overbought Hurdle

AT40 = 69.9% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 58.8% of stocks are trading above their respective 200DMAs
VIX = 9.9
Short-term Trading Call: cautiously bullish

Commentary
This was one of those days where I have to assume some trading algorithm is having fun with technical indicators.

AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMA), closed exactly at 69.91%. My favorite technical indicator stopped just short of the 70% threshold that defines overbought trading conditions. AT40 crossed 70% several times during the trading day.

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I can’t make this stuff up: AT40 (T2108) can’t get much closer to the overbought threshold of 70%.

While I wait to upgrade my short-term trading call from cautiously bullish, small cap stocks signaled a confirmation of the underlying strength in the market. The iShares Russell 2000 ETF (IWM) soared 2.0% and closed at a fresh all-time high.

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The iShares Russell 2000 ETF (IWM) confirmed its breakout from 2017’s trading range in just about the most bullish way possible. The fresh all-time high formed a declarative exclamation mark.

The S&P 500 (SPY) was content to let small caps hog the spotlight. At its high of the day, the index made a new marginal all-time high, but it closed just below that high.

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The S&P 500 (SPY) is confirming a quick rebound from Monday’s dip toward uptrending 20DMA support.

The volatility index, the VIX, added its confirmation of the bullish tone by dropping below 10 again. I have not yet reset my timeline for the duration of the bullish implications of extremely low volatility, but at the current rate the market will not be “due” for even a 5% pullback until next Spring or later!

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The volatility index, the VIX, dropped below 10 yet again where it has spent much of its time since May.

With September set to go out on a relatively benign, even bullish note, October stands ominously ahead as the last of the three seasonally weak months for the stock market. The month will be filled with news vying to be catalysts for market angst and celebrations: from North Korea to tax reform to the economic costs and recovery from one major natural disaster after another. All eyes and prayers are on Puerto Rico now. The latest issue: a shortage of money – hard cash. If you have not done so already, please consider donating a small portion of your trading/investing profits (or even your time) to at least one of the several on-going relief efforts.