AT40Â = 68.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200Â = 65.4% of stocks are trading above their respective 200DMAs
VIXÂ = 10.9 (volatility index)
Short-term Trading Call: bullish
Commentary
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), pushed into overbought territory today with an intraday high of 72.7%. AT40 pivoted around the 70% threshold over and over before closing the day in retreat. The close of 68.1% leaves my favorite technical indicator tantalizingly close to a status it last obtained 70 trading days ago on January 25, 2017 (for one precious day).
The S&P 500 (SPY) fell just short of 2,400 before fading to a flat close. If buyers do not step back in quickly, the index will risk a full retreat to 50DMA support (where I will happily reload on S&P 500 longs).
The S&P 500 quickly went from spry to exhausted. Support at the 50DMA may be in play already.
I strongly prefer some venting of steam here because hitting overbought status with the S&P 500 stretched above its upper-Bollinger Band (BB) would force me to temper my bullishness. A pullback to or close to 50DMA support would allow some room for AT40 to cross 70% without the S&P 500 in an over-stretched state.
The volatility index, the VIX, did not benefit much from the day’s reversal (which presumably was the market’s way of welcoming the announcement of President Trump’s tax plan – sell the news and/or acknowledgement of the rough road ahead).
The volatility index remains at a near 3-year low.
In my last Above the 40 post, I neglected to point out the big move to all-time highs by Netflix (NFLX). Last week, I shorted NFLX based on what looked like a confirmed 50DMA breakdown. The stock promptly turned around and closed above its 50DMA on Monday….where I was supposed to hit a stop loss. I forgot to set up that trade, and on Tuesday I paid dearly. The main saving grace is that I had a very small position. This was a good lesson and reminder on maintaining discipline around stop loss points. (I will now bail on a new all-time high).
