AT40 = 36.2% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 50.4% of stocks are trading above their respective 200DMAs
VIX = 16.5
Short-term Trading Call: neutral (awaiting confirmation of bullish breakout)
Commentary
Something woke the bulls and buyers back up enough to get the steamroller warmed up again. The bears have had plenty of time to sidestep what looks like a freshly bullish bumrush.
The S&P 500 (via SPDR S&P 500 (NYSE:SPY)) jumped higher by 1.6% for its highest close during this recovery from oversold trading conditions. The index is once again above its 50-day moving average (DMA), and this time looks ready to confirm the breakout.
The S&P 500 (SPY) closed above its 20DMA for the first time since the beginning of February. A confirmation of the 50DMA breakout awaits.
The NASDAQ gained 1.8% and closed even with the intraday high of this recovery period. The PowerShares QQQ ETF (NASDAQ:QQQ) gained 2.0% and made its highest high of the recovery period. The tech-laden ETF even looks ready to challenge its all-time high in the coming week. QQQ is also even with its price that opened February.
The NASDAQ has held its 20DMA as support and looks ready to confirm with a fresh breakout.
The PowerShares QQQ ETF (QQQ) is suddenly one of the most bullish indices as its V-recovery looks ready to challenge all-time highs.
The iShares Russell 2000 ETF (NYSE:IWM) continues to lag. While IWM made its highest close of the recovery period, the index is still wrestling with 50DMA resistance.
The iShares Russell 2000 ETF (IWM) remains capped by 50DMA resistance.
The strong buying pressure had the expected impact on the volatility index, the VIX. The VIX finished a complete reversal of all its gains since the largest percentage jump in its history. The current implosion should be no surprise to anyone who has looked at historical data and especially the recent data. For a refresher, see my last post on the topic: “Periods of Extremely Low Volatility Remain Bullish – Now With Fresh Footnotes.”
The VIX lost 11.2% on Friday and closed at 16.5. Interestingly, the iPath S&P 500 VIX ST Futures ETN (NYSE:VXX) has yet to reverse even half its gain on the day when the VIX experienced its largest ever percentage gain. I strongly suspect a lot of “catch-up” is going to happen in the coming weeks. So instead of looking to fade VXX, I may add to my short VXX position on weakness.
The volatility index, the VIX, has spent most of its time in decline ever since it set a record for the largest % gain in one day.
The iPath S&P 500 VIX ST Futures ETN (VXX) is following the VIX downward but at a much slower pace.
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, made its highest close of the recovery period at 36.2%. AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, finally closed above 50% at 50.4%. Another close above the 50% mark in the coming days will become sufficient reason to expect even more healing for the market.
I left my short-term trading call at neutral even though I am very biased to buy. I will flip the trading call back to bullish once/if the S&P 500 confirms its 50DMA breakout.
CHART REVIEWS
Apple (NASDAQ:AAPL)
Nothing says a change in mood like AAPL confirming a 50DMA breakout. AAPL has not only reversed all its post-earnings loss, but also the stock has little overhead resistance between here and its all-time high. I failed to make my weekly play on call options, but I will do so on the first dip on Monday…if one comes!
Apple (AAPL) is showing off a dramatic shift in mood with a V-recovery that has quickly wiped out post-earnings losses and then some.
Paypal (NASDAQ:PYPL)
In what looks like a breakout period for the market, stocks like PYPL become ripe for trading long. The stock broke out above its 20 and 50DMAs and has a post-earnings gap to fill. The stop loss points are simple and can be set based on risk tolerance. The tightest stop is around $76 below the recent congestion around the 50DMA. A more aggressive stop is under the most recent low around $71. A close at that level would be bearish as a (re)confirmation of a 50DMA breakdown.
PayPal Holdings (PYPL) is clinging to its 50DMA uptrend and looks ready to confirm the 50DMA breakout that should eventually lead to new highs.
Snap (NYSE:SNAP)
SNAP travelled in the opposite direction of the stock market. The stock ended the previous week on a high note with a run-up that looked like the triumphant return of post-earnings momentum. Citigroup (NYSE:C) drained that rising tide with a sell rating to start the holiday-shortened week. Sellers hardly took a pause from there except to allow a breather for an obligatory bounce off the $17 IPO price. A tweet from Kylie Jenner, star Olympian Caitlyn Jenner‘s mega (former teen) celebrity daughter, greased the skids: she expressed her dislike for the new user interface (UI)…
With 363,000 likes (hearts), 5,100 comments, and 74,000 retweets, Kylie’s tweet seems to validate Citigroup’s sell rating. However, I duly noted Kylie said nothing about what she will use instead – stick with Instagram? Twitter? I think the “Kylie panic” is worth buying into as the negative endorsement can easily be reversed and/or fixed. For example, the quick trigger media seemed to miss Kylie’s follow-up tweet later the same day which reversed the star’s initial rant…
My last shares of SNAP were called away on the previous expiry week, so I did feel fortunate after the Citi downgrade. I used the subsequent selling to accumulate call options and lastly to buy a covered call position for good measure. As before, I am fine with the shares getting called away. If the shares survive expiry, I will sell calls again. I am assuming given SNAP’s strong earnings performance the stock can and will at worst pivot around its $17 IPO price for now.
Snap, Inc. (SNAP) finished reversing its incremental post-earnings gain. Can presumed support at the $17 IPO price hold up?
“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 #6 over 20%, Day #2 under 30%, Day #13 under 40%, Day #13 under 50%, Day #14 under 60%, Day #20 under 70%
Daily AT40 (T2108)
Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)
Weekly AT40 (T2108)
Be careful out there!
Full disclosure: short VXX, long SPY call spread, long SNAP shares and short a call, long SNAP calls, long PYPL shares