AT40 = 24.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 47.4% of stocks are trading above their respective 200DMAs
VIX = 27.7 (range from 21.2 to 31.6)
Short-term Trading Call: neutral
Commentary
Buyers failed their first post-oversold test. The S&P 500 (SPY) rallied just enough to peak over resistance at its 50-day moving average (DMA) but failed to hold there. The fade was accentuated by a rush of selling in the last 15 minutes of trading. Now the index is one follow-through day away from printing a very bearish pattern that would confirm 50DMA resistance. Only oversold conditions will stand as a buffer against that reading.
Sellers rejected the S&P 500 (SPY) at 50DMA resistance.
The Nasdaq looked like it had passed the test by leaping a good distance above its 50DMA. The confirmation of the previous day’s breakout was short-lived.
The PowerShares QQQ ETF (QQQ) almost succeeded in holding 50DMA support.
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed the day with a slight gain in a small hint of bullish divergence from the market. My favorite technical indicator survived the late selling to close at 24.1% and a marginal lift. If AT40 drops into oversold conditions again (below 20%), I will refresh the oversold trading rules I outlined during the 1-day oversold period. If the S&P 500 closes below Tuesday’s intraday low of 2593, I will assume the inevitability of a test of 200DMA support. Moreover, I will be even more inclined to fade rallies at 50DMA resistance. For today, I picked on BHP Billiton (BHP) per the top in iron ore I described last week. I also added to my put options on Caterpillar (CAT) which now serves as a hedge.
However, I could not help getting a head start on two bullish plays I expect to pay off by the end of next week. I bought a fresh call option on SPY that actually triggered AFTER the close of trading (it was a low ball limit order that I did not cancel at the close). I also bought a single put option on ProShares Ultra VIX Short-Term Futures (UVXY). This mixed approach is a result of my neutral short-term trading call and preparation for the lingering potential for at least one more large outsized move in either direction.
Leave A Comment