Above The 40 – Chipping Away At The Market Positives On The Way To Oversold

AT40 = 27.3% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 36.2% of stocks are trading above their respective 200DMAs (new 2-year closing and intraday lows)
VIX = 23.6
Short-term Trading Call: neutral

Commentary

In my last Above the 40, I tried to highlight the positives even as the negatives in the market grew. Sellers saw fit to remove one more positive: AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), effectively ended the pattern of higher lows with an intraday which tested the last low. Piling on, AT200 (T2107), the percentage of stocks trading above their respective 200-day moving averages (DMAs), set new 2-year lows at its intraday low and its close. So more and more stocks are suffering major breakdowns of long-term uptrends.

Perhaps even more importantly, the S&P 500 (SPY) lost 2.2% and closed below support at its 200-day moving average (DMA) for the first time since June 27, 2016 in the immediate wake of Brexit. That episode lasted one day. The 200DMA was retested in picture-perfect form on November 5, 2016 just ahead of the U.S. Presidential election.

The S&P 500 (SPY) made a rare break and close below its 200DMA support. Late buying was not enough to save support.

The S&P 500 (SPY) made a rare break and close below its 200DMA support. Late buying was not enough to save support.

The S&P 500 is down 10.1% from its all-time high and is down 3.4% year-to-date. Yesterday’s 2.2% loss was the S&P 500’s worst start to an April since at least 1950; the index lost 1.6% in 1986. Given the importance of the S&P 500’s two months of weakness, I am surprised to see that the index’s 200DMA is STILL trending upward. This strength is a testament to the near relentless upward momentum from 2017 that carried into January of this year. Over the last three years, I developed a topping signal based on the 200DMA logging a loss over 5 days after an all-time high. The S&P 500 has yet to experience such a stretch since its last all-time high. If the index fails to turn around its momentum in the coming weeks, this signal could become the straw that breaks me down into the bearish camp. Stay tuned on that one.

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Disclosure: Long SPY shares and calls, long INTC calls and puts, long CORN, long BA put.

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