Above The 40 – The S&P 500 Makes Another Bearish Divergence With A Fresh Twist

AT40 = 49.5% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 55.6% of stocks are trading above their respective 200DMAs
VIX = 10.4 (volatility index)
Short-term Trading Call: cautiously bullish

Commentary
Here we go again.

Last week, the S&P 500 slipped but did not fall off the edge. In my “Above the 40” post describing the trading action, I recounted the multitude of times this year that AT40 (T2108) – the percentage of stocks trading above their respective 40-day moving averages (DMAs) – faded from overbought conditions and the nature of the subsequent selling. AT40 has faded again, and again the nature of the selling is different from past episodes. The S&P 500 did not respond to the first fade, but took a quick intraday dive on the same day as the second fade. AT40 has continued to slide since then, yet the S&P 500 is holding firm.

In fact, AT40 has slipped all the way from 66.8% to 49.5% while BOTH the S&P 500 and the Nasdaq have held their ground; ditto for the PowerShares QQQ Trust (QQQ) which has a chart similar to the Nasdaq. It appears small caps and mid-caps are suffering the brunt of the current selling pressure.

The S&P 500 took a spill last week but, in a familiar scene, sellers have failed to come up with follow-through.

The S&P 500 took a spill last week but, in a familiar scene, sellers have failed to come up with follow-through.

Like the S&P 500, the NASDAQ has fought off the sellers since last week's quick spill. Notice the uptrending 20DMA holding support and the Bollinger Band (BB) squeeze starting to form.

Like the S&P 500, the Nasdaq has fought off the sellers since last week’s quick spill. Notice the uptrending 20DMA holding support and the Bollinger Band (BB) squeeze starting to form.

The iShares Russell 2000 ETF (IWM) has suffered selling pressure ever since notching a new all-time high last week. The uptrend formed by the 50DMA broke, but IWM is still clinging to a series of higher lows and higher highs.

The iShares Russell 2000 ETF (IWM) has suffered selling pressure ever since notching a new all-time high last week. The uptrend formed by the 50DMA broke, but IWM is still clinging to a series of higher lows and higher highs.

The chart for the SPDR S&P MidCap 400 ETF (MDY) is very similar to IWM.

The chart for the SPDR S&P MidCap 400 ETF (MDY) is very similar to IWM.

The danger level as measured by the volatility index, the VIX, has barely come off the recent 24-year closing low and all-time intraday lows.

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Full disclosure: long CTSH, long UVXY call option, short KR put option, short SYY put option

*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for ...

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