Above the 40DMA (October 17, 2018) – A New Oversold Period for the Stock Market Despite A Bullish Intraday Bounce
October 18, 2018 by Dr. Duru
AT40 = 19.3% of stocks are trading above their respective 40-day moving averages (DMAs) – 1st day of oversold period following 4-day oversold period
AT200 = 37.7% of stocks are trading above their respective 200DMAs (up 6 percentage points)
VIX = 17.4
Short-term Trading Call: bullish
Commentary
The stock market was unable to follow-through from the previous day’s big burst out of oversold territory. AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed slightly lower and below the 20% oversold threshold. While I have to reset the clock to count down a new oversold period, this drop was so slight that it looks like noise. In fact, the more important technical event was the ability of buyers to rally the market well off its intraday lows. THIS move looks like a continuation of a transition of market power back to buyers.
The S&P 500 (SPY) closed essentially flat after trading down as much as 1.0%. The NASDAQ and the Invesco QQQ Trust (QQQ) did nearly the same.
{The S&P 500 (SPY) survived selling that took the index close to 200DMA support. Buyers closed the index out at flatline.
The NASDAQ also survived a drop close to 200DMA support and ended the day right at flatline.
The Invesco QQQ Trust (QQQ) looks poised to make a run at 50DMA resistance after bouncing well off its intraday low.}
The volatility index, the VIX, closed slightly down and faded well off its intraday high. The VIX now looks poised to drop below the 15.35 pivot after failing near perfectly under the 20 “elevated” level.
{The volatility index, the VIX, woke up for a stretch during the day but ended with a loss. The 15.35 pivot awaits below.}
Since I am in accumulation mode (buy the dips specifically), I automatically placed a fresh order for SPY call options. Unlike Monday’s fortuitous execution, I did not get a fill this time. I failed to adjust my order and thus failed to profit from the bullish rebound. Time is also running out on my ProShares Ultra VIX Short-Term Futures (UVXY) put options. The VIX is down 39.7% from its intraday high and down 30.3% from its closing high during this fear cycle; yet, I will likely end up with a loss trying to ride this fade. I clearly need to continue working on execution of the volatility fade. I will likely need to extend duration and choose higher strikes for the next fade of a VIX pop.
October 18, 2018 by Dr. Duru
AT40 = 19.3% of stocks are trading above their respective 40-day moving averages (DMAs) – 1st day of oversold period following 4-day oversold period
AT200 = 37.7% of stocks are trading above their respective 200DMAs (up 6 percentage points)
VIX = 17.4
Short-term Trading Call: bullish
Commentary
The stock market was unable to follow-through from the previous day’s big burst out of oversold territory. AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed slightly lower and below the 20% oversold threshold. While I have to reset the clock to count down a new oversold period, this drop was so slight that it looks like noise. In fact, the more important technical event was the ability of buyers to rally the market well off its intraday lows. THIS move looks like a continuation of a transition of market power back to buyers.
The S&P 500 (SPY) closed essentially flat after trading down as much as 1.0%. The NASDAQ and the Invesco QQQ Trust (QQQ) did nearly the same.
{The S&P 500 (SPY) survived selling that took the index close to 200DMA support. Buyers closed the index out at flatline.
The NASDAQ also survived a drop close to 200DMA support and ended the day right at flatline.
The Invesco QQQ Trust (QQQ) looks poised to make a run at 50DMA resistance after bouncing well off its intraday low.}
The volatility index, the VIX, closed slightly down and faded well off its intraday high. The VIX now looks poised to drop below the 15.35 pivot after failing near perfectly under the 20 “elevated” level.
{The volatility index, the VIX, woke up for a stretch during the day but ended with a loss. The 15.35 pivot awaits below.}
Since I am in accumulation mode (buy the dips specifically), I automatically placed a fresh order for SPY call options. Unlike Monday’s fortuitous execution, I did not get a fill this time. I failed to adjust my order and thus failed to profit from the bullish rebound. Time is also running out on my ProShares Ultra VIX Short-Term Futures (UVXY) put options. The VIX is down 39.7% from its intraday high and down 30.3% from its closing high during this fear cycle; yet, I will likely end up with a loss trying to ride this fade. I clearly need to continue working on execution of the volatility fade. I will likely need to extend duration and choose higher strikes for the next fade of a VIX pop.