The Oversold Chronicles End As A Fed-Inspired Stock Market Explodes Higher

Goldman Sachs (GS)

GS is also looking more short-term bullish. The stock gained 3.3% and cleanly cleared its downtrending 20DMA. Overhead resistance at the downtrending 50DMA is now in play which should be good for at least a 10% gain from current levels. Like NFLX, I have put a temporary hold on using GS as a hedge against bullish positions, but I bought a last put for good measure. GS gets interesting again on the short side at 50DMA resistance or a close below its 20DMA.

Goldman Sachs (GS) gained 3.3% with a clean clearing above its downtrending 20DMA resistance.

Goldman Sachs (GS) gained 3.3% with a clean clearing above its downtrending 20DMA resistance.

iShares US Home Construction ETF (ITB)

Home builders are suddenly looking better with individual stocks stabilizing. ITB confirmed the improving picture with a close above its 50DMA. ITB has spent very little time above this critical moving average since the big 50DMA breakdown almost a year ago!

The iShares US Home Construction ETF (ITB) managed to breakout above its downtrending 50DMA resistance with a 4.1% gain.

The iShares US Home Construction ETF (ITB) managed to breakout above its downtrending 50DMA resistance with a 4.1% gain.

Meritage Homes (MTH)

MTH is one of those stabilizing home builders. The stock followed through on its 50DMA breakout and is back to recent highs. Overhead resistance at the 200DMA is in play. Also note the higher low with October holding as the major low.

Meritage Homes (MTH) gained 3.4% and closed at recent highs and is on the edge of confirming a 50DMA breakout and higher low.

Meritage Homes (MTH) gained 3.4% and closed at recent highs and is on the edge of confirming a 50DMA breakout and higher low.

LGI Homes (LGIH)

LGI keeps looking stronger and stronger. It broke out to a near 4-month high and closed above its upper-BB. The stock is sneaking upward with higher highs and higher lows.

LGI Homes (LGIH) gained 4.7% for a near 4-month high.

LGI Homes (LGIH) gained 4.7% for a near 4-month high.

Pulte Homes (PHM)

PHM is now so strong it is mounting a challenge to overhead resistance from its 200DMA, its first such challenge since last July. The stock broke out cleanly to a 4-month high.

Pulte Home (PHM) gained 4.9% to a 4-month high and now sits just below 200DMA resistance.

Pulte Homes (PHM) gained 4.9% to a 4-month high and now sits just below 200DMA resistance.

Toll Brothers (TOL)

TOL made its own clean breakout that puts its overhead resistance at the 200DMA in play. The buying was strong enough to hold TOL above its upper-BB with a 5.1% gain and a 3+ month high.

Toll Brothers (TOL) soared 5.1% to a 3+ month high and closed above its upper-BB.

Toll Brothers (TOL) soared 5.1% to a 3+ month high and closed above its upper-BB.

Intel (INTC)

I neglected to reload on INTC call options on Thursday’s big dip for my between earnings play. My current set of call options got a small boost but with a $50 strike, time is running out. Moreover, earnings are coming up on January 24th.

Intel (INTC) jumped 6.1% and closed just above its 50DMA and right at recent highs.

Intel (INTC) jumped 6.1% and closed just above its 50DMA and right at recent highs.

iShares Russell 2000 ETF (IWM)

IWM broke out over recent consolidation. I used the rally to take profits on a call option I bought earlier in the week (I should have bought fresh SPY calls at the same time!). I still like IWM for a run-up to downtrending 50DMA resistance; those prospects get a lot better the longer the market stays out of oversold territory.

The iShares Russell 2000 ETF (IWM) gained 3.7% and closed just above its downtrending 20DMA.

The iShares Russell 2000 ETF (IWM) gained 3.7% and closed just above its downtrending 20DMA.

Caterpillar (CAT)

CAT still qualifies for my toolkit of hedges. I used the big dip on Thursday to take profits on my put options (and sold too early). I used Friday’s rally to reload. I still expect CAT to warn and/or report poor earnings. If I am wrong, I will boost my overall expectations for the stock market in general.

Caterpillar (CAT) gapped up and powered right through its 50DMA for a 5.5% gain.

Caterpillar (CAT) gapped up and powered right through its 50DMA for a 5.5% gain.

Best Buy (BBY)

BBY also still qualifies for the hedging toolkit. I loaded up on put options on Thursday and duly noted how BBY struggled to go anywhere on Friday. While most of the market was soaring in Fed-inspired celebration, BBY only pushed upward by 0.5%. I was surprised by the sluggishness given the strong jobs report.

Best Buy (BBY) only gained 0.5% as its upward momentum from recent lows continues to wane.

Best Buy (BBY) only gained 0.5% as its upward momentum from recent lows continues to wane.

— – —

“Above the 40” 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 “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #1 over 20% (overperiod ending 13 days oversold), Day #19 under 30% (underperiod), Day #21 under 40%, Day #71 under 50%, Day #87 under 60%, Day #142 under 70% (includes several corrections)


Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)


Weekly AT40 (T2108)

Weekly T2108


*All charts created using freestockcharts.com unless otherwise stated.

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Disclosure: Long SSO, long AUD/JPY, net short U.S. dollar, long AMZN call spread, long BBY puts, long CAT puts, long GS put, long NFLX put, long INTC calls, net long AAPL shares, long ITB calls, long ...

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