Above The 40 – A Market Soaring Back To The Edge Of Overbought

AT40 = 69.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 63.3% of stocks are trading above their respective 200DMAs
VIX = 9.9
Short-term Trading Call: cautiously bullish

Commentary

Last week, I complained about the stock market’s “rubber band” getting stretched. I claimed that AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), had to push into overbought territory (above 70%) and/or the volatility index, the VIX, had to push to new all-time lows to enable a push higher for the S&P 500 (SPY). The S&P 500 made another all-time high yesterday, but AT40 rallied just short of the overbought threshold by closing at 69.0%, and the VIX closed with a gain 5 out of the last 6 trading days. AT40 jumped from 63.5% to 69.0% and firmly confirmed yesterday’s rally in the stock market.

On the way here, the S&P 500 delivered a small bearish divergence on Tuesday that looked like the beginning of a confirmation of my concerns (the S&P 500 rallied while AT40 declined). Sure enough, the S&P 500 took a dip next. Yet, faithful buyers rallied the index off its low of the day and kept up the pace by creating yesterday’s 0.7% gain and new all-time high.

The S&P 500 (SPY) delivered the shortest of hiccups before soaring to a new all-time high this week. The index has closed at or above its upper-Bollinger Band (BB) 6 out of the last 7 trading days.

The S&P 500 (SPY) delivered the shortest of hiccups before soaring to a new all-time high this week. The index has closed at or above its upper-Bollinger Band (BB) 6 out of the last 7 trading days.

The NASDAQ is matching the S&P 500 stride-for-stride.

The Nasdaq is matching the S&P 500 stride-for-stride.

The PowerShares QQQ ETF (QQQ) actually closed just BELOW its upper-Bollinger Band (BB) at its fresh all-time high.

The PowerShares QQQ ETF (QQQ) actually closed just BELOW its upper-Bollinger Band (BB) at its fresh all-time high.

The volatility index, the VIX, was faded hard on Wednesday, but it looks like it is stabilizing above all-time lows.

The volatility index, the VIX, was faded hard on Wednesday, but it looks like it is stabilizing above all-time lows.

The brevity and shallowness of the dip is part of a months-long pattern. I was amused by the conventional financial media that assigned great weight to the selling and went on expeditions to explain the losses. Most, if not all, of those explanations, appear meaningless now.

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Disclosure: Long UVXY calls, long ULTA.

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