Above The 40 – A Swift Break From The Market’s Downward Drip

AT40 = 45.8% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 53.8% of stocks are trading above their respective 200DMAs
VIX = 11.8 (10.4% loss)
Short-term Trading Call: cautiously bullish

Commentary
It was one of THOSE days for anyone or anything standing in the way of the buyers.

An overwhelming rush to the basket… (Philadelphia 76ers Joel Embiid vs. L.A. Lakers rookie Lonzo Ball)

Source: Twitter

Right after I pointed out the mildly ominous indicators of a market that “wants to drop,” the buyers finally stepped into the market with conviction again. AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, jumped from 41.1% to 45.8%. The S&P 500 (SPY) launched higher by 0.8%. Together, these two combine to suggest that the recent selling phase, as mild as it was, has ended.

The S&P 500 (SPY) made a 180 degree turn to return to the high of the week.

Wednesday’s intraday low on the S&P 500 neatly tapped the lower-Bollinger Band (BB). That move looks like a bottom. A close below this level will flip me to a cautiously bearish trading bias. Otherwise, I consider Thursday’s move as a confirmation follow-through for the bottom. With AT40 at 45.8%, the market has plenty of upside potential ahead as the market reaches for overbought status (above 70%).

The volatility index, the VIX, added its vote for a bottom. After gaining 7 of the last 8 days, the VIX finally succumbed to the volatility faders who earlier could only take the VIX off its highs. This time, the pressure started from the open and barely relented. Perhaps Wednesday’s lofty intraday high was a “close enough” test of the 15.35 pivot line.

The volatility faders look like they have regained control over the volatility index, the VIX.

The headline news suggests that the twists and turns of tax reform are tugging away at the market, but I am very skeptical the market has attempted to price in any benefits. Such a move may not happen until companies start providing estimates of such benefits AFTER tax reform legislation passes. In the meantime, the amazing post-earnings 10.9% gain by Wal-Mart (WMT) is quite sufficient to explain the market’s good mood: death by Amazon.com (AMZN) is suddenly far from inevitable again.