Above The 40 – The Stock Market Hits A New Bearish Divergence

AT40 = 39.9% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 58.3% of stocks are trading above their respective 200DMAs
VIX = 12.3 (volatility index)
Short-term Trading Call: neutral

Commentary
From a technical perspective, my last “Above the 40” post made as detailed a case as I can make to describe the erosion of the stock market’s foundations. Today, that erosion expressed itself in a new bearish divergence that I find remarkable. (The latest bearish divergence was invalidated by the S&P 500’s big mid-February breakout). The S&P 500 (SPY) bounced perfectly off support at its uptrending 20-day moving average (DMA) and closed with the slightest gain. Yet, AT40 (T2108), the percentage of stocks trading above their 40DMAs took a plunge to 39.9%. AT200 (T2107) took a dive to 58.3%.

(Click on image to enlarge)

Sellers in the the S&P 500 (SPY) took their time again. This time, they failed to log a negative close. The index even looks poised for a bounce off 20DMA support.

Sellers in the the S&P 500 (SPY) took their time again. This time, they failed to log a negative close. The index even looks poised for a bounce off 20DMA support.

(Click on image to enlarge)

AT40 (T2108) plunged to close below 40% for the first time in 83 trading days.

AT40 (T2108) plunged to close below 40% for the first time in 83 trading days.

(Click on image to enlarge)

AT200 (T2107) once again confirmed the reversing momentum with an exclamation point.

AT200 (T2107) once again confirmed the reversing momentum with an exclamation point.

The current pullback in the S&P 500 continues to look orderly and subdued. The index crossed my line into bearish territory but bounced above it into the close. So while the S&P 500 completed a reversal of its last bullish breakout, I still cannot flip my trading call to bearish.

While the S&P 500 drips ever so slowly, the descents in both AT40 and AT200 appear breathtaking. At its low of the day, AT40 finished reversing its ENTIRE post-election gain (coincidence AT40 bounced perfectly off its close from November 8, 2016?). At 39.9%, AT40 is officially within “striking distance” of oversold conditions. AT200 last closed as low as 58.3% on November 10, 2016. If the S&P 500 were to pullback even by a few percentage points over a few days, I am pretty sure I will be talking about the prospects for oversold conditions.

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Full disclosure: long UVXY call options, long SNAP, long QSR

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