Jul 8 Above The 40 – Bears Overstay Their Welcome

AT40 = 60.5% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 56.8% of stocks are trading above their respective 200DMAs
VIX = 13.4
Short-term Trading Call: neutral

Commentary
Until Friday’s 0.8% gain on the S&P 500 (SPY) in the wake of another strong jobs report, I was still expecting the bearish case for the market’s technicals to reassert themselves. Instead, bears lost control of the 50DMA pivoting action, and buyers pushed the index right through a now declining 20-day moving average (DMA).

The S&P 500 (SPY) broke away from its 50DMA pivot in a move that positions the index for a fresh upward push.

The S&P 500 (SPY) broke away from its 50DMA pivot in a move that positions the index for a fresh upward push.

With the S&P 500 effectively breaking out, I backed off my bearish short-term trading call and flipped to neutral. AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, is adding to an apparent change in momentum with gains 4 straight days. The first day’s gain was marginal, but it came after my favorite technical inidicator gapped down to start last week’s trading. That gap down at first appeared to deliver further confirmation of the market’s bearish burden. AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, added to the case of the bulls by soaring last week from a low of 48.4% to a close of 56.8%. This longer-term indicator is now less than two percentage points away from June’s peak.

The volatility index, the VIX, all but nailed the coffin on the bearish case. After looking like it would hold the 15.35 pivot line, the VIX freshly collapsed on Friday. The fear gauge dropped 10.7% and closed at 13.4. I still think the 12 level will hold as support. Some fresh tensions could build in the market as complacency presses for that support level at the same time AT40 reaches for the overbought level of 70%.

The volatility index, the VIX, has apparently come to the end of another (short) fear cycle.

The volatility index, the VIX, has apparently come to the end of another (short) fear cycle.

Other indices are looking as bullish as ever. The NASDAQ gained 1.3% on Friday and confirmed a successful test of 50DMA support. The Invesco QQQ Trust (QQQ) gained 1.6% in a move that also confirmed 50DMA support. The iShares Russell 2000 ETF (IWM) bounced off 50DMA support after gapping down to start last week’s trading. Buyers steamrolled their way higher from there.

The NASDAQ created a bit of suspense over the test of its 50DMA support. Friday's big breakout confirmed that support and put another all-time high into play.

The NASDAQ created a bit of suspense over the test of its 50DMA support. Friday’s big breakout confirmed that support and put another all-time high into play.

The Invesco QQQ Trust (QQQ) is stretching for its all-time high after slicing right through its 20DMa and confirming 50DMA support.

The Invesco QQQ Trust (QQQ) is stretching for its all-time high after slicing right through its 20DMa and confirming 50DMA support.

The iShares Russell 2000 ETF (IWM) is sprinting higher off a successful test of 50DMA support. A new all-time high is easily within view.

The iShares Russell 2000 ETF (IWM) is sprinting higher off a successful test of 50DMA support. A new all-time high is easily within view.

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Full disclosure: long QQQ puts, long BHP puts, long RIO call, long CAT put, long DBX, long TSLA call

*Charting notes: FreeStockCharts.com stock prices are not adjusted for dividends. ...

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