Above The 40 – Oversold Conditions End In The Face Of A Critical Test

AT40 = 20.4% of stocks are trading above their respective 40-day moving averages (DMAs) (ends 3-day oversold period)
AT200 = 44.8% of stocks are trading above their respective 200DMAs
VIX = 25.0 (smallest range since February 1, 2018)
Short-term Trading Call: bullish

Commentary
It was a reluctant push, but AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), just barely punched above the oversold threshold of 20%. The close of 20.4% ends a 3-day oversold period over which the S&P 500 (SPY) gained 3.2%. That performance is at the high end of an expected 3-day oversold period (see the red dots in the chart below).

The performance of the S&P 500 for a given oversold duration (T2108 below 20%).

The S&P 500 (SPY) closed with a marginal 0.3% gain. It has yet to reverse or invalidate the failure at 50DMA resistance.

The S&P 500 (SPY) has now managed to gain for three straight days. Will buyers now turn reticent in the face of new economic data and looming overhead resistance?

The volatility index, the VIX, dropped just 2.5%. The range from intraday low to high was the smallest range since the beginning of the month. This is a perfect coiled spring ahead of the U.S. report on inflation (CPI) on Valentine’s Day, Wednesday, February 14th. Since an inflation “scare” from strong wage gains in the jobs report was one of the proximate causes of the current sell-off, this inflation report has the potential to make or break the recovery from oversold trading conditions.

CHART REVIEWS

Under Armour (UAA)
UAA popped 17.4% post-earnings. Back on November 9, 2017, Kohl’s (KSS) had the following to say in its earnings conference call about Under Armour (emphasis mine) (from the Seeking Alpha transcript):

“Looking at our progress on our individual key pillars, on the product front, our active business increased almost 20% for the quarter, an acceleration of the year-to-date trend. Both apparel and footwear categories in Active were strong and this was driven by large increases in both Nike and Adidas, as well as continued strong performance from Under Armour. We continue to gain market share in Active and we expect the very strong holiday performance in both Active apparel and footwear categories.”