Above The 40 – The Stock Market Breaks Out With A French Fly

AT40 = 61.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 63.0% of stocks are trading above their respective 200DMAs
VIX = 10.8 (volatility index)
Short-term Trading Call: bullish

Commentary
Going into the first round of the French Presidential election, I figured the best case scenario was the absence of a market sell-off. I never even considered the possibility that the prospect of the election was actually weighing on the stock market. After all, the euro (FXE) was in recovery mode from its latest dip against the U.S. dollar (DXY0). EUR/USD showed no immediate concern with the election.

Thanks to the bullish response to the French Presidential election, EUR/USD is back to breakout mode.

Despite a small recent rise in net euro shorts, speculators were overall in the middle of their most extended retreat from net short positions since they last switched to euro bears almost three years ago.

Speculators steadily reduced net short positions against the euro for weeks going into the French Presidential election.
Source: Oanda’s CFTC’s Commitments of Traders

So, going into the weekend, while I remained bullish on the euro, I surely did not expect a tremendous surge on whatever would be interpreted as good news from the first round of the Presidential election. I am nicknaming this burst of euphoria the “French Fly.”

The French Fly was definitively bullish with important breakouts on the major indices. I even dropped “cautiously” from my short-term trading call. Traders smashed the short-term downtrend on the S&P 500 (SPY) and scoffed at resistance from the 50-day moving average (DMA).