Above The 40 – The S&P 500 Suffers A Convincing End To Bullish Divergence

AT40 = 38.2% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 57.2% of stocks are trading above their respective 200DMAs
VIX = 16.0 (volatility index)
Short-term Trading Call: cautiously bullish (notable caveats explained below)

Commentary
The 50-day moving average (DMA) is no longer golden. It figures that on a day with the smallest gain in the volatility index, the VIX, during the current melt-up, the S&P 500 (SPY) experienced its ugliest close since the November U.S. Presidential election.

The S&P 500 (SPY) lost 0.7% to close a holiday-shortened week but lost something even more significant this week: the support of its 50-day moving average (DMA).

The volatility index (VIX) bounced back from a dip below the all-important 15.35 pivot.

The previous day the S&P 500 (SPY) closed below its 50DMA for the first time since election day November 8, 2016. Thursday’s drop below the lower-Bollinger Band (BB) marked a 42-trading day low. The last time the index closed at a 42-trading day low was….you guessed…right before the U.S. Presidential election – November 4, 2016 to be exact. The S&P 500’s 50DMA breakdown confirmed the on-going downtrend from its all-time high and also confirmed the incrementally higher danger embedded in the market.

Despite the clear and present dangers, I watched the open of trading with optimism. The VIX had faded below the all-important 15.35 pivot, so I assumed a big VIX fade was on its way like so many other times before this. I even bought shares of ProShares Short VIX Short-Term Futures (SVXY) for a day-trade. I eventually stopped out at a loss.

The uptrend in ProShares Short VIX Short-Term Futures (SVXY) has been so strong and persistent that SVXY has sent very little time trading below its 50DMA since last summer. Is this time different?

If the S&P 500 closes below the intraday low from March 27th, I will be compelled to retreat from a cautiously bullish to a neutral trading call and, presumably, wait for AT40 (T2108) to flip to oversold trading conditions. AT40, the percentage of stocks trading above their respective 40DMAs, decisively ended a brief period of (uncomfortable) bullish divergence by collapsing over the last two trading days from 54.8% to 38.2%.