T2108 Update – The Waterfall And The Whale: An Oversold Near Miss

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 28.8%
T2107 Status: 17.7%
VIX Status: 21.7 (faded from a high of 27.7!)
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #4 over 20% (overperiod), Day #22 under 30% (underperiod), Day #38 under 40%, Day #42 below 50%, Day #57 under 60%, Day #398 under 70%

Commentary

@maoxian – today’s stock market was a waterfall followed by a whale jumping in the pool!

— Dr. Duru (@DrDuru) February 4, 2016

Wednesday was a wacky day of trading. The “waterfall” came in the form of the typical market leaders continuing a cascade of weakness that is out-of-step with the stock market’s emergence from oversold trading conditions. Google (GOOG) has already reversed all its post-earnings gain. Amazon.com (AMZN) closed below its 200-day moving average (DMA) for the first time since January, 2015. Netflix (NFLX), which has continued to sell off after a wild post-earnings day, touched its flash crash lows before rallying to a smaller loss on the day. “Full Bull” Facebook (FB) was down as much as 3% before rallying to cut that loss in about half. (Amazing how we have come full circle to put our faith in a small group of out-performing internet-related stocks!)

The post-earnings celebration in Google (GOOG) has ended as fast as it started. The subsequent 50DMA breakdown represents folow-through selling from the post-earnings fade. This reaction is very different from GOOG’s last post-earnings fade.

Amazon.com (AMZN) continues to lose favor in rapid fashion. Even with the bounce from lows, AMZN could not manage to hold 200DMA support.

Netflix (NFLX) remains trapped with a downtrending channel as post-earnings selling continues.

Facebook (FB) is the last of the leaders to hold onto post-earnings gains. Is one last coattail enough to keep buyers interested in the market?

A whale jumped into the pool around 2pm: sellers went scrambling for cover and buyers rushed in to enjoy the uplift of water from the bottom and onto safe ground at the close. The 5-minute chart of the S&P 500 (SPY) shows that one 5-minute block completely changed the feel and sentiment of the market.