Above the 40 (November 1, 2018) – An Extended Oversold Period Ends with Important Footnotes
November 1, 2018 by Dr. Duru
AT40 = 21.4% of stocks are trading above their respective 40-day moving averages (DMAs) – ends an 11-day oversold period that followed a 4-day oversold period
AT200 = 32.0% of stocks are trading above their respective 200DMAs
VIX = 19.3
Short-term Trading Call: bullish
Commentary
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), closed at X%. The move ended a very extended 11-day oversold period that followed a one day respite from a 4-day oversold period. Today was the kind of day I wanted for a punch out of oversold conditions; it even quickly invalidated a small bearish divergence. The rally in the S&P 500 (SPY), the NASDAQ, and the Invesco QQQ Trust (QQQ) were all strong enough to close at their intraday highs and surpass the previous day’s intraday highs. The volatility index, the VIX, even cooperated by falling below 20 and presumably starts the end of wild swings in the market.
{The S&P 500 (SPY) gained 1.1% in a move that confirmed the breakout from the lower Bollinger Band (BB) downtrend channel.}
{The NASDAQ gained 1.8% in a move that confirmed the breakout from the lower Bollinger Band (BB) downtrend channel. It closed right at downtrending 20DMA resistance.}
{The Invesco QQQ Trust (QQQ) gained 1.3% as it closed right at converged resistance from the 20 and 200DMAs.}
{The volatility index, the VIX, looks like it confirmed a double top. I earlier expected one final surge in volatility before the next implosion.}
I thought my footnote on the action would be the wildcard of Friday’s jobs report. However, a poorly received earnings report from Apple (AAPL) in the after hours has the potential for sending the market right back into oversold territory. Whatever happens Friday, attention should quickly turn to the midterm elections on Tuesday. No matter the results, I am anticipating a volatility implosion as the market settles into incrementally lower uncertainty. If volatility remains high, then I will have to re-evaluate my expectations for a relatively benign end to the year.
Perhaps an even more important footnote is the relative performance of AT40 versus AT200 (T2107), the percentage of stocks trading above their respective 200DMAs. AT40 ended the oversold period at a slightly higher level than it ended the prior oversold period. However, AT200 ended this oversold period significantly lower: 32.0% versus 39.6%. This disparity flags longer-term technical damage in the stock market; the rebound out of oversold conditions left behind a small group of stocks. These laggards will hurt breadth as the rally proceeds and could provide the seed for the next market topping action. As usual, I will take this process one step at a time.
This was another day to mainly focus discipline on holding my long positions and looking for more buying opportunities from the shopping list. I snuck into ProShares Ultra S&P500 (SSO) on the small pullback from the open. I am in accumulation mode for SSO shares. I added to my Walmart (WMT) call options. I launched another short Rio Tinto (RIO) versus long BHP Billiton (BHP) pairs trade this time with a bullish bias. I even purchased a call spread on Red Hat (RHT) to play the post IBM deal discount. However, I missed out on getting back into Baidu (BIDU); I blinked and the call options I targeted increased by almost 4x as the stock gained a whopping 6.0% by the close. President Trump’s claim that he would get a “great deal” with China helped ignite the fire.
November 1, 2018 by Dr. Duru
AT40 = 21.4% of stocks are trading above their respective 40-day moving averages (DMAs) – ends an 11-day oversold period that followed a 4-day oversold period
AT200 = 32.0% of stocks are trading above their respective 200DMAs
VIX = 19.3
Short-term Trading Call: bullish
Commentary
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), closed at X%. The move ended a very extended 11-day oversold period that followed a one day respite from a 4-day oversold period. Today was the kind of day I wanted for a punch out of oversold conditions; it even quickly invalidated a small bearish divergence. The rally in the S&P 500 (SPY), the NASDAQ, and the Invesco QQQ Trust (QQQ) were all strong enough to close at their intraday highs and surpass the previous day’s intraday highs. The volatility index, the VIX, even cooperated by falling below 20 and presumably starts the end of wild swings in the market.
{The S&P 500 (SPY) gained 1.1% in a move that confirmed the breakout from the lower Bollinger Band (BB) downtrend channel.}
{The NASDAQ gained 1.8% in a move that confirmed the breakout from the lower Bollinger Band (BB) downtrend channel. It closed right at downtrending 20DMA resistance.}
{The Invesco QQQ Trust (QQQ) gained 1.3% as it closed right at converged resistance from the 20 and 200DMAs.}
{The volatility index, the VIX, looks like it confirmed a double top. I earlier expected one final surge in volatility before the next implosion.}
I thought my footnote on the action would be the wildcard of Friday’s jobs report. However, a poorly received earnings report from Apple (AAPL) in the after hours has the potential for sending the market right back into oversold territory. Whatever happens Friday, attention should quickly turn to the midterm elections on Tuesday. No matter the results, I am anticipating a volatility implosion as the market settles into incrementally lower uncertainty. If volatility remains high, then I will have to re-evaluate my expectations for a relatively benign end to the year.
Perhaps an even more important footnote is the relative performance of AT40 versus AT200 (T2107), the percentage of stocks trading above their respective 200DMAs. AT40 ended the oversold period at a slightly higher level than it ended the prior oversold period. However, AT200 ended this oversold period significantly lower: 32.0% versus 39.6%. This disparity flags longer-term technical damage in the stock market; the rebound out of oversold conditions left behind a small group of stocks. These laggards will hurt breadth as the rally proceeds and could provide the seed for the next market topping action. As usual, I will take this process one step at a time.
This was another day to mainly focus discipline on holding my long positions and looking for more buying opportunities from the shopping list. I snuck into ProShares Ultra S&P500 (SSO) on the small pullback from the open. I am in accumulation mode for SSO shares. I added to my Walmart (WMT) call options. I launched another short Rio Tinto (RIO) versus long BHP Billiton (BHP) pairs trade this time with a bullish bias. I even purchased a call spread on Red Hat (RHT) to play the post IBM deal discount. However, I missed out on getting back into Baidu (BIDU); I blinked and the call options I targeted increased by almost 4x as the stock gained a whopping 6.0% by the close. President Trump’s claim that he would get a “great deal” with China helped ignite the fire.