AT40 = 53.5% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 45.9% of stocks are trading above their respective 200DMAs
VIX = 14.8
Short-term Trading Call: cautiously bearish
Commentary
I was right to be bearish last week…until the very last day when all at once the market reversed almost all its accumulated worries.
The S&P 500 (via SPDR S&P 500 (NYSE:SPY)) bounced back from yet another test of still uptrending 200DMA support. Friday’s 1.3% gain put it within yet another encounter with downtrending resistance from its 50DMA.
The 1.7% gain in the NASDAQ was enough to nick 50DMA resistance.
The 1.9% gain for the PowerShares QQQ Trust Series 1 (NASDAQ:QQQ) was enough to break through 50DMA resistance.
As usual, there are a host of catalysts to cherry pick to explain what happened: a) a benign jobs report showing strong growth but wage growth “weaker than expected,” b) China approved a joint-venture between Qualcomm (NASDAQ:QCOM) and China’s state-owned Datang Telecom Technology Co. in a hopeful sign of thawing trade tensions between the U.S. and China, and/or c) news that Warren Buffett added another 75 millions shares to his investment in Apple (NASDAQ:AAPL) bringing his share of Apple’s stocks to a notable 5%.
I could be missing some catalysts (and conveniently ignoring something the market also ignored on the day), but I will focus in on AAPL since in my last Above the 40 post earlier post I noted how AAPL’s repeated pre-earnings failure to break through 200DMA resistance was a sentiment killer. I even, =gasp=, flipped puts several times and used this behavior as part of my argument to remain cautiously bearish on the market.
The story with AAPL is simple now. The stock made a new all-time high. It completely reversed the last iPhone panic. It is one of the few big cap tech stocks which sustained a positive post-earnings response. It has major backing from a major investor of influence. The company is pumping a literal tidal wave of cash into the hands of shareholders through another $100B in its buyback and another dividend hike. These are not the tailwinds to fight! They are the tailwinds to ride.
Apple (AAPL) ended an incredible week with a 3.9% gain on Friday alone. The week that finally produced a new all-time high also delivered a whopping 13.3% gain.
At this point, pretty much only fresh news of China vs. U.S. trade tensions could stand in AAPL’s way in the coming weeks and months. Yet, while AAPL’s stellar performance tempts me, I am not yet ready to declare the all-clear for the stock market.
I have a few stubborn reasons left for staying cautiously bearish the market in general. The S&P 500 remains firmly stuck in a triangle pattern. I need to see the index close above the peak from the last 50DMA breakout AND show follow through buying. My favorite technical indicator, AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, was very weak until Friday.
Even with the S&P 500 making another amazing 200DMA comeback on Thursday, AT40 closed at a 3 week low. At 53.5%, AT40 has more upside, but it is still in “show me” mode after a bearish rejection from the 70% overbought threshold on April 19th. Finally, the S&P 500 has now responded poorly to the last three meetings from the Federal Reserve. In other words, I think it is very possible AAPL powers higher without dragging much of the general market with it as investors and traders seeking “safety” in equities bias their money toward AAPL and away from a lot of other options.
The volatility index, the VIX, is at a critical juncture. It jumped around the 15.35 pivot all week only to close at 14.8. If downward momentum continues, I will have to assume bullish sentiment is similarly growing. I was fortunate during the week to sell my last tranche of call options in ProShares Ultra VIX Short-Term Futures (NYSE:UVXY) for a small profit and then quickly flip through a short position in iPath S&P 500 VIX Short-Term Futures Exp 30 Jan 2019 (NYSE:VXX). I bought a new tranche of UVXY calls near Friday’s close.
The volatility index, the VIX, looks ready to cave to downward pressure as the hold of the 15.35 pivot weakens. (Note I think the long tail is a charting/pricing error).
CHART REVIEWS
Chipotle Mexican Grill (NYSE:CMG)
The wait continues. CMG has calmed down since its amazing post-earnings pop. I am itching to pounce long. I just need to see the stock trade over the intraday high of a previous trading day. I let Friday’s high go though. A hit in SwingTradeBot’s “calm after the storm” stock scan would seal my resolve to dive in.
Chipotle Mexican Grill (CMG) spent the week stabilizing. It looks like a coiling spring.
Caterpillar (NYSE:CAT)
CAT joined the S&P 500 (SPY) in a resounding defense of 200DMA support. I used the last two days to return to using CAT as a hedge against more market malaise. Despite Friday’s 1.8% gain, CAT did not quite make a post-earnings high.
Caterpillar (CAT) survived a major test of the on-going downtrend from January’s all-time high with an immediate bounce off 200DMA support.
Boeing (NYSE:BA)
Despite my bearishness, I could not resist testing BA’s relatively consistent behavior when it neared the bottom of its trading range. Sure enough, I was able to sell my call options at a profit after the stock made a 180 off support from the range. I will be looking to buy puts when/if BA hits the top of the range regardless of my trading call at the time.
Boeing (BA) remains well-defined by its 2018 trading range.
Cboe Global Markets, Inc. (NASDAQ:CBOE)
I invested in CBOE for a longer-term trade, so I am trying not to get distracted by its on-going technical weakness. CBOE closed at a post-earnings and 8-month low. If it closes below February’s intraday low, I will likely have to rethink my thesis and the investment in it.
Cboe Global Markets, Inc. (CBOE) is back in bearish territory with a second confirmation of its 200DMA breakdown and notable weakness relative to the general stock market.
Financial Select Sector SPDR ETF (NYSE:XLF)
The surprising weakness in CBOE parallels the lackluster performance of financials. On Thursday, XLF broke down below its 200DMA support. Unlike the S&P 500, it failed to bounce back. XLF’s breakdown seemed to add a confirmation to my short-term cautious bearishness. It took Friday’s big market rally to drag financials kicking and screaming out of the bearish abyss. XLF gained 1.3% on the day. I remain leery.
Despite a rebound above 200DMA resistance, the Financial Select Sector SPDR (NYSE:XLF) still looks broken.
Autozone (NYSE:AZO)
In my previous Above the 40 post, I noted my surprise that AZO received tepid sympathy lift from the stellar post-earnings response in O'Reilly Automotive Inc (NASDAQ:ORLY). With the S&P 500 snapping back and AZO trading above its 200DMA, I decided to rush in with a position. My move turned out to be very timely as AZO soared on Friday as much as 3%. I sold my call option for 3.5x what I paid.
While I was prepared to hold the call option for the two weeks left until expiration, I followed the rule to sell options which double or more in price very quickly after purchase. It is a profit preservation rule that assumes such quick gains are hard to sustain. Needless to say, AZO is going to stay on my radar all the way through its next earnings report on May 22nd. I expect to have a bullish position ahead of those earnings if the stock remains around current levels.
Autozone (AZO) gained 2.1% and a 7-week closing high. This move looks like a very convincing breakout above converged 50 and 200DMA resistance.
Logitech (NASDAQ:LOGI)
I heaved a major sigh of relief when LOGI popped post-earnings over its 50DMA resistance. My position is back in the green after buying the second tranche of stock ahead of earnings, and I think my longer-term bullish thesis on this trade remains intact.
Logitech (LOGI) fell 1.2% to close the week, but I remain optimistic that its latest post-earnings pop refreshed the bullish momentum for the stock.
Fluor (NYSE:FLR)
I breathed a sign of relief for a different reason in FLR. When material stocks bearishly broke down in late March, I sold my long-standing position in FLR as a precaution. On Friday, FLR imploded by 22.4% after reporting earnings that clearly disappointed investors bigtime. I am now looking for an excuse to buy back in, but I have not yet had time to investigate the earnings news.
Fluor (FLR) gapped down well below its 50 and 200DMAs and closed at a near 6-month low. In just one day, the stock lost around half of its impressive recovery from an 8-year low in August, 2017.
Pandora (NYSE:P)
For the first time ever, I am getting bullish feelings about Pandora. The stock gapped up 19.8% after reporting earnings. The move easily cleared 200DMA resistance and a 6-month trading range in place since Pandora’s last post-earnings disaster. At its high of the day, P almost closed the gap from its previous collapse. Importantly, bears are all over Pandora with 31% of its float still sold short.
It looks like the bottom is FINALLY in for Pandora (P). A fresh post-earnings high should confirm the signal.
Ulta Beauty (NASDAQ:ULTA)
It took me too long, but I returned to the bullish camp on ULTA this week. I covered an ill-fated short the previous week and bought the pullback to the lower part of the uptrend channel through the upper-Bollinger Bands (BBs). The 2.8% gain on Friday seemed to confirm the wisdom of my change in heart.
Ulta Beauty (ULTA) looks like it is in accumulation mode with a near relentless upward push through its upper-Bollinger Bands (BBs).
Amazon.com (NASDAQ:AMZN)
If AMZN resumes its upward push, I will be hard-pressed to stick to my bearish biases on the general stock market. AMZN is surviving its gap and crap post-earnings move with a stabilization in its shares. The stock looks ready to climb up its upper-BB. As a reminder I bought a calendar call spread in AMZN as a hedge against my bearishness. Now I find myself near ready to root for the bulls.
