(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: 57.9%
T2107 Status: 74.2%
VIX Status: 12.0 (fell 11.1%)
General (Short-term) Trading Call: cautiously bearish
Active T2108 periods: Day #139 over 20%, Day #45 over 30%, Day #44 over 40%, Day #43 over 50% (overperiod), Day #6 under 60% (underperiod), Day #21 under 70%

Commentary
After my last T2108 Update, I eagerly awaited a long overdue eruption of volatility. I am still waiting. After Friday’s jobs report missed “expectations,” volatility took a dive off the deep end and left intact the ceiling at the critical 15.35 pivot.

Back to the drawing board for the volatility index, the VIX.

Along with the plunge in volatility, the S&P 500 (SPY) gapped back into the middle of the current trading range. The move left behind two straight days where sellers seemed to be ready to break the index down only to stumble and fall as buyers rallied the index off its lows for the day.

The S&P 500 continues to float along in an ever-extending trading range.

During that time, T2108, the percentage of stocks trading above their respective 40-day moving averages (DMAs), took some serious technical hits. T2108 traded as low as 48.3% on Thursday, September 1, and closed that day at 52.3%. The bearish divergence widened ever further. T2108 closed the week at 57.9%. The good news for bulls and buyers is that, T2107, the percentage of stocks trading above their respective 200DMAs, has remained remarkably calm throughout all this churn. T2107 has drifted within a tight two percentage point range since it recovered from early August’s brief tumble. My short-term trading bias is still cautiously bearish given the earlier described divergence and the tendency for September to deliver the biggest drawdowns of the year.

T2108’s downtrend exposes an on-going deterioration of short-term technicals for the general stock market.

T2107’s steady hand indicates the longer-term health of the stock market remains remarkably intact.

Central bank and OPEC action looks set to dominate the scene for September. This week kicks things off with the Reserve Bank of Australia on September 6th (2:30pm AEST – not long from the time of writing) and the European Central Bank (ECB) on September 8th. As these events roll out, currencies may become the forcing function for stocks. In the meantime, here are some stock charts to consider this week…

I wrote comprehensively about Mylan NV (MYL) and its EpiPen pricing debacle last week. I predicted further selling ahead and collateral damage for the iShares Nasdaq Biotechnology (IBB). Two-for-two so far although IBB is holding up to the Clinton Bash Part Two a lot better than I expected. Perhaps the market has already priced in its Clinton fears from last year. I hope to soon cover two epinephrine-related companies Impax Laboratories (IPXL) and Adamis Pharmaceuticals (ADMP).

The selling accelerated on Mylan (MYL).

The iShares Nasdaq Biotechnology (IBB) is barely clinging to converged support at its 50 and 200DMAs. One more slip could trigger a cascade of selling pressure.

On Friday, August 26, Nightly Business Report (NBR) featured U.S. Concrete (USCR) as a stock pick from a fund manager. I put the company on my potential buy list but have hesitated given the sudden appearance of high-volume selling. I have yet to find explanatory news, but I have duly noted that the stock is technically a short given how well the 200DMA has held up as resistance. The high-volume selling seems to confirm USCR as a short. I need to see much more constructive action before pulling the trigger for a buy at some point in the future.

Since an early August gap down, sellers and resistance have dominated the action on U.S. Concrete (USCR). It looks like a don’t buy/sell/short here.

Start at the 15:57 mark…

Tableau Software (DATA) has erased about half of its big gain from August 23rd. This looks like a classic “calm after the storm” trade setup. Although I am bearish on the stock market, I am keeping an eye on this setup. If it fails, I might short DATA in anticipation of a complete gap fill and/or retest of 50DMA support. (See earlier T2108 Update for description of previous setup on DATA).

Buyers have yet to follow-through on the big gap up for Tableau Software (DATA), but the selling is drifting and non-committal. A return of buyers could lead to a swift resumption of momentum or a continued absence of buyers could motivate more determined selling.

About a month ago, I concluded that the Teucrium Corn ETF (CORN) would continue to sell-off. After a brief pop, CORN did indeed set new all-time lows. Buyers returned over the past two days, and CORN is looking interesting again. I will stay patient and wait to see whether the ETN can even manage to a close above 50DMA resistance before I consider any kind of purchase. Readers recall that I typically exempt commodities from my general stock market trading call since they can be uncorrelated to stock market returns.

Sellers have placed intense pressure on Teucrium Corn ETF (CORN). Can buyers sustain the latest bounce?

The earlier contrary excitement over retailers has cooled off and even reversed in many cases. Macy’s (M) led the way by cratering through its 200DMA. The stock is now trying an important bounce from 50DMA support. The SPDR S&P Retail ETF (XRT) is also trying to find support at its 50DMA. If I were not bearish, I would look to buy XRT here. Instead, I am watching for a breakdown to sell. JC Penney is also testing important 50DMA support. The stock was a big undervalued pick by the fund manager on NBR August 26th: “I’m telling you, this is one of the biggest turnaround stories I have come across in my 30 years.”

The bad news is good news trade looks just about over for Macy’s (M). Can buyers defend support at the 50DMA?

The SPDR S&P Retail ETF (XRT) is also trying to hold support at its 50DMA. However a double-top for 2016 may already be a lock.

Imagine that – JC Penney Company (JCP) is also testing critical 50DMA support.

The Hain Celestial Group, Inc. (HAIN) broke down to a new post-earnings warning low and is now a short. (9/6 correction: HAIN gapped down on an earnings warning. Chart will be corrected going forward).

The Hain Celestial Group, Inc. (HAIN) is breaking down in the “open field.” A retest of 2016’s low is in play.

Twitter (TWTR) survived a test of 200DMA support. The stock now looks ready to overwhelm the two sell ratings that smacked it off its last perch.

Twitter (TWTR) rebounds off 200DMA support. Can it “defeat” the 2 recent sell ratings?

Post-earnings sellers in Palo Alto Networks (PANW) stopped neatly at 50DMA support. Buyers took over from there. They rushed right into the gap but now face 200DMA resistance. Which is it? Were earnings bad or good?

Palo Alto Networks (PANW) is struggling to regain its former luster as an unstoppable stock. Resistance at its 200DMA may be the ultimate dividing line between breakout and resignation.

One final trading note, I sold my call options in the iShares Silver Trust (SLV) as part of a hedged trade for last week. The precious metals did not move nearly as much as I had hoped (open or down). The profits from the SLV call options cover most of the cost of my call options on ProShares UltraShort Silver (ZSL). If SLV manages to breakout above 50DMA resistance, I will likely jump right back into call options and get much more aggressive.

The iShares Silver Trust (SLV) springs back to life and makes a challenge for 50DMA resistance.

— – —

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

The charts above are the my LATEST updates independent of the date of this given T2108 post. For my latest T2108 post click here.

Related links:
The T2108 Resource Page

Be careful out there!

Full disclosure: long SDS, long UVXY shares, long MYL puts, long IBB puts, long HAIN puts, short TWTR puts, long SLV, long ZSL puts

(This is an excerpt from an article I originally published on Seeking Alpha on August 29, 2016. Click here to read the entire piece.)

This is the message actress Sarah Jessica Parker posted on Instagram Thursday, August 25, 2016 to join a chorus of protest and complaint about the extremely high cost of the EpiPen® Auto-Injector…{snip} The angry chorus Parker joined has caused a world of hurt for Mylan (MYL), the maker of this important device.

A near geometric rise in the price of EpiPens shortly after Mylan acquired the device.

Source: CNBC

In this piece I take a broad view of the EpiPen controversy. I use a timeline of Mylan’s recent earnings reports to establish the background and context for the company’s response to the firestorm. I detail the responses from the political, medical, and commercial establishments to claim that Mylan’s current efforts are insufficient and doomed to fail. I conclude with trading and investing recommendations that assume more short-term pain to come ahead and potential longer-term upside IF Mylan’s sales goals are achievable AND all related parties can figure out a workable solution to the pricing mess in due time.

My extended family includes children and adults who are vulnerable to anaphylactic reactions to various kinds of allergens. I am quite familiar with EpiPens, and I take this topic very seriously. As a result I have followed the price outrage with great interest. In writing this piece, I discovered there is a LOT about this system of medicine delivery I did not fully appreciate. I come out the other side both more frustrated and hopeful.

The Mylan Solo Song – Sowing the seeds of wrath

{snip}

Mylan’s dominant market position with its EpiPen has apparently not helped the stock this year.

Source: FreeStockCharts.com

{snip}

The Political Chorus – A propagation of pressure

The blowback to Mylan erupted in full on Monday, August 22 when two members of Congress released separate letters sent to the company requesting more information about EpiPen pricing. {snip}

The iShares Nasdaq Biotechnology (IBB) seems to have hit a wall at the upper end of an extended trading range.

Source: FreeStockCharts.com

The Medical Chorus – Sealing Mylan’s fate

A political firestorm can cause plenty of damage, especially when attempts at PR fall on unappreciative ears. The Clinton Bash from last year still presents an ominous ceiling for IBB. However, I found the chorus from the medical community to be the most damaging to Mylan’s prospects of escaping this firestorm with its EpiPen franchise unscathed. I also find the rancor from the medical field relatively more credible since so many politicians happily accepted past campaign donations from Mylan’s Political Action Committee (PAC).

{snip}

Mylan’s Choral Encore – Desperately talking over a cacophony of disapproval

With the tremendous swell of negative opinion pressuring from all around, MYL doubled-down on its PR efforts to recapture favor. {snip}

Mylan was VERY clear in placing the blame on the system for the high prices (again, hate the game, not the player):

{snip}

Mylan claims that the supply chain is responsible for more than half of the list price of the EpiPen

Source: Mylan

Mylan does not explain why and how the cost of the EpiPen has increased so much and why a device that uses a dose of medicine that cost no more than a few bucks should have such a tremendous mark-up. The reaction from the Pharmaceutical Care Management Association (PCMA) was swift. {snip}

Express Scripts (ESRX), and other payers, take a huge hit as Mylan drags them through the mud and into the spotlight.

Source: FreeStockCharts.com

Something tells me that a thorough investigation will find blemishes up and down the line. However, Mylan gets to enjoy the brunt of the blame until it provides its numerous detractors a specific accounting and justification for its contribution to the cost. {snip}

The Trading Chorus – final implications

As with most volatile, new-driven stock situations, there are short-term and long-term implications. In the short-term, I see more selling ahead. In the longer-term, I see the potential for decent upside although I am far from willing to bet on it anytime soon.

According to SEC filings, Mylan’s CEO is incentivized to hit a $6 EPS (earnings per share) target by March, 2018. {snip}

In the short-term, the picture looks ugly for MYL and perhaps for the drug industry as well. If the government is in the middle of significantly changing the rules of the game, a price overhang will loom over many stocks in the industry – just as the Clinton Bash from 2015 continues to provide overhang. Both MYL and IBB should trend lower in coming weeks assuming MYL is not able to reach a relatively swift resolution to the firestorm. at this point, such a save will require some major “humble pie” that seems missing in the company’s demeanor to-date.

{snip}

Be careful out there!

Full disclosure: long IBB put options

(This is an excerpt from an article I originally published on Seeking Alpha on August 29, 2016. Click here to read the entire piece.)

And they say Twitter (TWTR) has no value.

On October 14th, Bernie Sanders was given credit for taking down the shares of Ariad Pharmaceuticals (ARIA) using the power of Twitter. ARIA fell 14.8% on the day on a 260% increase in trading volume relative to the 90-day moving average. ARIA is a stock still trying to recover from a massive plunge in 2013. Year-to-date ARIA is still up a hefty 78.2%.

Ariad Pharmaceuticals (ARIA) broke out in 2016 from a multi-year trading range. The move looked like it could finally propel ARIA into reversing its massive loss from 2013. At least partially thanks to Senator Sanders, ARIA looks more likely to reverse its 2016 breakout first.

ARIA has 18.4% of its float sold short (according to Yahoo Finance), so Sanders threw a live stick of dynamite into the fray.

This episode was another reminder of the increasing pressure being brought to bear on drug companies and the prices of their drugs and remedies. Accordingly, the news seemed to take down the entire sector. ARIA is not a top 10 holding in IBB, yet IBB fell 1.9% on a day where the NASDAQ first gapped up and then ended the day flat.

The selling in IBB created a doubly bearish move. Not only did IBB confirm resistance at its declining 200-day moving average (DMA), but also IBB printed a bearish engulfing pattern. This pattern signals a top or a continuation of a bearish trend by opening higher than the previous day’s intraday high and closing lower than the previous day’s intraday low. This move takes on extra bearish significance given the confirmed 50DMA breakdown from September and the 200DMA breakdown two trading days prior. Moreover, Hillary Clinton seems to have helped IBB print a double top at the recent highs.

iShares Nasdaq Biotechnology (IBB) breaks down.

The only good news for IBB is that trading volume declined consistently as the week of selling wore on. So, it is possible the bearish pressure is starting to wane. Time will tell and technicals might offer clues to what is next.

For now, the trade on IBB is relatively simple: 1) fade rallies as long as it trades below 200DMA resistance, 2) buy on a close above 200DMA resistance, and/or 3) try for a buy on a retest of 2016 lows. Each of these trades provides natural stop loss points: 1) above the 200DMA, 2) below the 200DMA, 3) a breakdown below the 2016 lows.

I fully expect #1 to dominate the IBB trading strategy all the way to a retest of the 2016 lows and then provide a lower risk and better reward buying opportunity in scenario #3. The pressure of the election cycle is on full throttle and bashing drug companies which have become perfect targets with nary a defender in site.

Be careful out there!

Full disclosure: short TWTR put options, long TWTR call options

(This is an excerpt from an article I originally published on Seeking Alpha on October 19, 2016. Click here to read the entire piece.)

Mylan (MYL) is down 13% (and as much as 17%) since I argued the company was “out of tune” with an angry chorus that promised to place a lot of short-term pressure on the stock. {snip}

A week ago, the Annals of Internal Medicine published an article extremely critical of Mylan’s attempt to classify the EpiPen as a preventive service. {snip}

{snip} So what we have is a pharmaceutical company which paid a consulting company to write an opinion piece which was given a veneer of credibility through the authoring of a medical doctor. This setup alone is not particularly egregious given all the clear disclosures. However, the setup is troubling when combined with the goal of convincing the U.S. Preventive Services Task Force (USPSTF) to grant the EpiPen a status which would eliminate patient co-pays, force health plans to cover 100% of the cost, and thus allow Mylan to continue sheltering much of its soaring price hikes away from public scrutiny.

{snip} If Mylan’s argument prevails, an appendectomy could be considered preventive because it avoids more serious issues if an appendicitis is allowed to go untreated (the Annals article made this point).

If Mylan’s effort had won the day early enough, the EpiPen outcry may never have occurred or at least been delayed much further. Insurance plans would have been forced to eat Mylan’s price hikes and look to transfer these costs in the forms of higher premiums and/or higher deductibles for other treatments. {snip}

In an October 5, 2016 letter to Senator Ron Wyden, Acting Administrator Andrew M. Slavitt described how Mylan failed to take action after the Centers for Medicare & Medicaid Services (CMS) identified the issue. {snip}

Mylan’s press release announcing the settlement included earnings guidance. {snip} I pointed out in my last Mylan post that this target provides a reason for sticking by MYL over the longer term. At this point, belief in management’s substantial incentive to hit this target forms the fundamental or core thesis for investing in the company.

The reaction in Mylan’s stock to the settlement and guidance has been revealing. {snip}

Mylan (MYL) has lost about 24% of its value ever since the EpiPen outrage began in earnest.

Mylan is a cheap stock getting even cheaper {snip}

Mylan also suffers from industry-wide overhang. {snip}

The iShares Nasdaq Biotechnology (IBB) is breaking down again.

Source for charts: FreeStockCharts.com

Having said all this, I think MYL’s quick settlement with the government is the first positive sign in this EpiPen mess. As a result, I changed my trading strategy in the wake of the mess. {snip}

Be careful out there!

Full disclosure: no positions

(This is an excerpt from an article I originally published on Seeking Alpha on October 19, 2016. Click here to read the entire piece.)

(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: 29.5%
T2107 Status: 56.2%
VIX Status: 16.2
General (Short-term) Trading Call: neutral
Active T2108 periods: Day #176 over 20%, Day #1 under 30% (underperiod), Day #4 under 40%, Day #21 under 50%, Day #36 under 60%, Day #62 under 70%

Commentary
The complacency going into this earnings season came to a definitive end this past week. The divergences exposing the stock market’s underlying weakness further expanded and are even more striking. The pressures have pushed T2108, the percentage of stocks trading above their respective 40-day moving averages (DMAs), ever closer to oversold territory (below 20%). T2107, the percentage of stocks trading above their respective 200DMAs, looks like it topped out.

T2108 has firmly returned to the post-Brexit lows and sits within striking distance of oversold levels. Can my favorite technical indicator bounce from this support one more time?

T2107 is ominously topping out as the post-recession downtrend reasserts itself.

The S&P 500 (SPY) is performing valiantly given it has failed to break free from 50DMA resistance since Fedspeak helped knock it down in early September. I am still assuming that a trading range is in effect until the U.S. Presidential election, but that assumption looks ever more tenuous.

The 50DMA once again capped the S&P 500 (SPY). It closed the week drooping toward the bottom of the recent range.

Suddenly the NASDAQ (QQQ) is also struggling with its 50DMA. Just a month ago, the NASDAQ’s out-performance shone as a market beacon. On Monday, the tech-laden index gapped up convincingly toward its all-time high. The index sold off for four straight days and ended the week with a 50DMA breakdown. The chart below suggests that the NASDAQ is working on a double top. A breach of September’s low would confirm the double top. Bears should duly note how the sharp and intense selling following Brexit set the stage for invalidating the last double top that formed with the April and June highs.

The NASDAQ (QQQ) gapped up to start the week and then proceeded to sell-off the rest of the week to a new closing low for October. The tech-laden index is finally looking toppy.

Interestingly, election-related news likely drove the market’s latest bout of weakness. The S&P 500 was working on drifting into the close with a small gain when news broke about FBI Director James Comey sending a letter to Congress about new Hillary Clinton emails. Rumors, commentary, and counter-commentary swirled, but the stock market never managed to stage a complete comeback. The 5-minute chart below shows the knockdown and subsequent volatility.

This 5-minute chart shows how quickly the S&P 500 (SPY) sold off on the latest news of Clinton emails. The market never fully recovered as clarifications rolled on throughout the day.

Given T2108 was around 30% and seeing how fast the market reacted to a developing story, I decided to jump on SPY call options. When the market first bounced, I was astounded to see the call options gain over 30%. I quickly took profits and set a limit order to buy again at my original price. Sure enough, the market obliged. I then decided to double down with put options on ProShares Ultra VIX Short-Term Futures (UVXY). The volatility index, the VIX, soared on the day but faded hard from its intraday high. I strongly suspect that the VIX will cool down on Monday. This assumption is risky since the VIX closed above the 15.35 pivot. Note the series of lower highs and higher lows forming a subtle wedge pattern on the VIX. I am basically betting that volatility will quickly calm back down as it has done with recent spikes.

The volatility index (VIX) popped above the 15.35 pivot point but faded from its intraday high. Bears and sellers have regained the advantage but for how much longer?

I consider my bullish trades as a “special case” given the overall deterioration in the underpinnings of the market. I am keeping my short-term bias on neutral only because T2108 is so close to oversold territory. My favorite technical indicator demonstrates most clearly the dangers in the market when juxtaposed with the S&P 500. T2107 confirms the red flag. Small cap stocks are also adding to the danger signs. The iShares Russell 2000 (IWM) closed at a new four month low and confirmed resistance at the 50DMA. A retest of 200DMA support is now in play.

Small cap stocks have confirmed an ominous failure at 50DMA resistance. These stocks add to the picture of a weakening foundation for the stock market.

The long-standing deterioration in PowerShares S&P 500 Low Volatility ETF (SPLV) resumed this week with a confirmation of a 200DMA breakdown (granted it bounced slightly on Friday). The PowerShares S&P 500 High Beta ETF (SPHB) continued to hold its ground with rising 50DMA support. It looks like these high beta stocks will be the last to go…

PowerShares S&P 500 Low Volatility ETF (SPLV) continues to sag. It 31/2 month downtrend exposes the underlying weakness of the S&P 500.

The PowerShares S&P 500 High Beta ETF (SPHB) continues to happily hug 50DMA support and is helping to prop up the overall S&P 500.

The process for breaking down the high beta stocks may have finally begun with Amazon.com (AMZN) and Alphabet (GOOG) putting on poor post-earnings performances on Friday.

AMZN cleanly broke down below 50DMA support and even closed on its lows. However, assuming the market is in trading range mode, I pulled a play out of the AMZN post-earnings rule book and bought a 790/800 call spread expiring in two weeks. If I am correct about the trading range going into the election, I think AMZN could easily mount a relief rally back to 50DMA resistance and my $800 upside target.

Amazon.com (AMZN) broke 50DMA support for the first time in 7 months. Notice the selling and weakness going into earnings.

Like AMZN, GOOG succumbed to mounting selling pressure going into earnings. Yet, GOOG’s earnings results were enough to generate a gap up and even a follow-up run back to all-time highs. The sellers returned at that point and closed GOOG out exactly flat with the pre-earnings close. I think this fade served as a sufficient confirmation that GOOG’s rally will stall here. Support at the 50DMA is now in play.

Alphabet (GOOG) gapped and crapped after earnings initially challenged the all-time high. The flat close puts at least the 50DMA support into play.

Pre-earnings selling pressure was also telling for Chipotle Mexican Grill (CMG). CMG failed to break 200DMA resistance on October 10th, broke down below 50DMA support, made a half-hearted recovery, sold off ahead of earnings, and then gapped down convincingly post-earnings. CMG now trades at a fresh 3-year and 3-month low. Yet, sellers have not made more progress in the two following trading days. I am holding onto a call option that is the result of another successful trade on CMG using a long/short configuration. This time around, I went back to options on both sides. I initiated the trade right after the open as CMG broke through its 52-week low. I locked in profits on the put as sellers pressured CMG well below its lower-Bollinger Band (BB).

Chipotle Mexican Grill (CMG) broke down afresh from a poorly received earnings report. Buyers are now trying to hold the post-earnings low as the latest level of support.

In general, the long/short trades are working very well in the wake of earnings reactions. I was burned enough with earlier attempts to anticipate the direction of post-earnings trades. One time the market follows momentum, another time the market fades momentum – I managed to find myself on the wrong side with Netflix (NFLX) and Caterpillar (CAT). As part of my lesson, I followed my trading call to short Whirlpool (WHR) but married call options to my put options. Sure enough, WHR soared on Friday. I locked in profits on the call options as a partial payment for the put options.

Edwards Life Sciences (EW) provided another dramatic post-earnings failure. In a rare bout of bad news, EW gapped down so hard it crashed through 200DMA support with a devastating 17.1% loss. On the next day, sellers looked primed to reverse all the gains form the April post-earnings gap up. Buyers closed out the week and provided some hope that EW will at least challenge 200DMA resistance soon.

Edwards Life Sciences (EW) suffered a major post-earnings 200DMA breakdown that threatens to erase its entire April post-earnings breakout.

The Bernie Bash apparently continues to weigh on the iShares Nasdaq Biotechnology (IBB). On Friday, IBB confirmed its 200DMA breakdown with a gap down on heavy selling volume. I am a little bit late to the game, but I wanted to wait for confirmation. I bought my put option on an intraday relief rally.

The Bernie Bash remains alive and well after iShares Nasdaq Biotechnology (IBB) gapped down and confirmed 200DMA resistance.

Netflix had a stellar post-earnings week but this week completely stalled out. After ignoring momentum and buying put options in the immediate wake of earnings, I am now eyeing NFLX like a hawk for a break from the current consolidation.

After a monster post-earnings streak last week, Netflix (NFLX) completely stalled this week.

The iShares US Home Construction (ITB) has created one of the most disappointing breakdowns that I am tracking. I will write more about ITB in my next Housing Market Review. For now, I will just note how ITB broke down below 200DMA support and dropped straight through a series of housing reports. A big spike in long-term bond yields pretty much confirmed the breakdown.

The iShares US Home Construction (ITB) sagged to a 7-month low after a series of data followed the ETF through a 200DMA breakdown.

On the bullish side, my trade on Alcoa (AA) worked out as the stock held support. I locked in profits on Friday with AA pressed against 200DMA resistance. The post-earnings sell-off was so strong, I doubt that AA can retest the top of it trading range anytime soon.

Alcoa (AA) passed the test and held support at the bottom of its trading range.

Also on the bullish side, I bought the post-earnings 50DMA breakout for Freeport-McMoRan Inc. (FCX). I have been eyeing FCX for almost 2 weeks for my next play on its extended trading range. I bought call options and am targeting a run to the top of the range by December.

Freeport-McMoRan Inc. (FCX) received a nudge above 50DMA resistance thanks to earnings. It may finally make another run at the April/July highs.

Hershey (HSY) soared after its earnings report. This breakout is so impressive, HSY looks ready to return to the highs carved out by the buyout offer from Mondelez. I am holding long-term call options from buying on the test of 200DMA support. I was tempted to sell but did not. I think HSY is a clear buy on the dips going forward.

Hershey’s soared into the gap post-earnings on an impressing 50/200DMA breakout well above the upper Bollinger Band (BB)

One of the more intriguing dynamics in the market has developed between the U.S. dollar index (DXY0) and precious metals. The U.S. dollar index experienced a very strong October. Yet, neither SPDR Gold Shares (GLD) nor iShares Silver Trust (SLV) were thrown off their respective uptrending support lines from 200DMAs. My play on support still sits with SLV call options. I am not yet ready to add to the play with VanEck Vectors Gold Miners ETF (GDX) call options: I am still waiting for GLD to make a convincing push away from support. Regardless, I am thinking something has to give way in this dynamic. The U.S. Presidential election will likely deliver the catalyst…

It looks like the U.S. dollar index (DXY0) has come to the end of a month-long streak

SPDR Gold Shares (GLD) has hung close to a rising 200DMA support. Imagine what might happen if the U.S. dollar index starts declining?

Like GLD, the iShares Silver Trust (SLV) has closely followed its rising 200DMA support. A brewing Bollinger Band (BB) squeeze promises to resolve into a big move in the coming weeks.

— – —

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

The charts above are the my LATEST updates independent of the date of this given T2108 post. For my latest T2108 post click here.

Related links:
The T2108 Resource Page

Be careful out there!

Full disclosure: long SDS, long SPY call options, long UVXY shares and short UVXY call and long UVXY put options, long CAT call and put options, net long the U.S. dollar index, long GLD, long SLV shares and call options, long WHR put options, long AMZN call spread, long IBB put options, long HSY call options

The iShares Nasdaq Biotechnology (IBB) suffered three important “bashes” starting in September, 2015 when Secretary of State Hillary Clinton promised to end price gouging by drug makers. Since then, a similar promise in August created a fresh top in IBB and a bash by Senator Bernie Sanders created a breakdown below 200-day moving average (DMA) support.

The iShares Nasdaq Biotechnology (IBB) broke out anew thanks to a Clinton loss in the U.S. Presidential election.

Source: FreeStockCharts.com

A Donald Trump victory in the U.S. Presidential election breathed new life into the sagging ETF. The chart above shows that IBB gapped above resistance at BOTH the 50 and 200-day moving averages (DMAs). IBB closed with a whopping 8.9% gain.

Perhaps most importantly IBB finally overcame a bash. The Bernie Bash is now in the rear view mirror. Assuming the 50DMA now holds as support, I foresee a quick test of Clinton Bash two around $300. Unless a triple top is in IBB’s future, a fresh rally should challenge the levels from the first Clinton Bash. This trade is one of many Trump-related trades now on my radar…

Full disclosure: no positions

(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: 68.6%
T2107 Status: 63.0%
VIX Status: 11.8
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #200 over 20%, Day #20 over 30%, Day #19 over 40%, Day #17 over 50%, Day #11 over 60% (overperiod), Day #90 under 70%

Commentary
After a bit of a hiccup since the last T2108 Update, the stock market is back on track. The breather for the S&P 500 (SPY) seems to be over with T2108 at 68.6% and just below the 70% overbought threshold. The S&P 500 closed today just one point off its all-time high set on November 25th.

The S&P 500’s breather did not last long – a major breakout lies around the corner.

The NASDAQ (QQQ) started December completing a sharp 2-day sell-off. The recovery is moving one slow step at a time.

The S&P 500 looks ready to break out mainly thanks to the high beta components of the index. PowerShares S&P 500 High Beta ETF (SPHB) is already making new all-time highs after last month’s breather. The PowerShares S&P 500 Low Volatility ETF (SPLV) remains the laggard slowing down the action. I use a weekly chart for SPHB to show perspective. The flash crash from 2015 prevents me from showing an extended weekly for SPLV.

PowerShares S&P 500 High Beta ETF (SPHB) looks like a champ again.

PowerShares S&P 500 Low Volatility ETF (SPLV) continues to struggle to break free from a downtrend in place since July.

Needless to say, my short-term trading call remains bullish. The volatility index, the VIX, is a potential caveat. The VIX is hovering above its lows for the year. The post-election run-off for volatility appears set to continue, but complacency is already reaching “maximum” levels.

At at 4-month low, the volatility index, the VIX, is approaching “maximum complacency” once again.

I also feel a little uneasy anticipating a major breakout and overbought rally with an important Federal Reserve meeting just a week away. A new hedge in Catepillar (CAT) is helping me a bit with the unease. Last week, CAT released a sales update that seemed to take the steam out of the celebratory optimism that has accompanied the stock for quite some time – an enthusiasm that accelerated after the U.S. Presidential election (quote from Seeking Alpha transcripts – emphasis mine):

“Now let’s look at EPS excluding restructuring as reflected in the Thomson First Call Consensus, which is on Slide 8. In our view that current consensus of $3.25 on $38 billion of sales is too optimistic given expected headwinds. While we are still in the process of finalizing our 2017 plans for profit in cash flow, I wanted to review some of the headwinds that we know exist. Let’s start on the positive side of the ledger for profit. We expect $300 million to $400 million of cost reduction to carryover into 2017 from all the restructuring actions that we took this year, but now let’s look at the other side of the ledger.

On $1 billion of lower sales versus 2016, which is reflected in the Thomson First Call Consensus, we would expect that profit impacts that’s a variable margin rate of somewhere between $350 million to $450 million, variable margin as we define it as the selling price to dealers minus the variable input cost like material and labor.”

The news caused the stock to drop quickly from its high of the day, and I bought a handful of January put options. CAT has done well to stabilize since then. Note well in the chart below how a Bollinger Band (BB) squeeze is developing (meaning that a big breakout, up or down, from low volatility is likely coming soon).

Caterpillar (CAT) gapped up 7.7% after the election and has gained an additional 4.4% since then. Last week’s business update put a firm halt to the momentum.

On the side of unadulterated bullishness, we stil have the financials. In the last T2108 Update, I relished finally landing a handful of call options in the Financial Select Sector SPDR ETF (XLF) at my target price. Incredibly, just two days later, that position increased around 150% in value as XLF hit a fresh 52-week high. I took my profits at that point. Since then, buyers pushed XLF to a fresh breakout and a near 9-year high.

The Financial Select Sector SPDR ETF (XLF) is in “full bull” mode.

When I last noted XLF’s momentum, I should have shown one of the clear leaders of that momentun: Goldman Sachs (GS). I think this chart says it all. Just looking at it should remind you to stay bullish this market for now.

Goldman Sachs has lurched higher nearly straight up since the election for a 27.2% gain since then.

This weekly chart shows GS at levels last seen in late 2007 – near an all-time high.

A friendly reminder from Netflix (NFLX) that tech and the internet economy is not quite dead yet… (compare to Facebook’s slow breakdown).

The post-earnings momentum has returned for Netflix (NFLX)

Finally, on the flip side, Chipotle Mexican Grill (CMG) is pushing on a fresh 3 1/2 year low as FY17 guidance severely disappoints the market. How much longer before Ackman makes a move at the board to try to save his recent investment from going down the tubes?

Chipotle Mexican Grill (CMG) sunk deeply in the wake of poor annual guidance. What catalyst can keep the stock from initiating a new, extended slide?

Finally, the health care sector has major post-election struggles. Medical device companies like Intuitive Surgical (ISRG) are flirting with major breakdowns. Last month’s attempt to regain support at the 200-day moving average (DMA) failed. A break of November’s low would confirm 200DMA resistance and put an extended slide into play.

The strong uptrend for Intuitive Surgical (ISRG) has ended with a major 200DMA breakdown. The 50DMA is curving sharply downward as well.

— – —

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

The charts above are the my LATEST updates independent of the date of this given T2108 post. For my latest T2108 post click here.

Related links:
The T2108 Resource Page

Be careful out there!

Full disclosure: long UVXY shares and short UVXY call options, long CMG call and put options

(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: 72.2% (first overbought day)
T2107 Status: 65.2%
VIX Status: 12.2
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #201 over 20%, Day #21 over 30%, Day #20 over 40%, Day #18 over 50%, Day #12 over 60%, Day #1 over 70% (overbought day #1 ended 90 days under 70%)

Commentary
The U.S. stock market tends to perform better under a divided government. However, you might not beieve that old Wall Street adage based on the 4.8% gain in the S&P 500 in just a month’s time since Republicans effectively took over the entire Federal government in the wake of the U.S. 2016 elections. The market has become downright giddy over the prospects of a federal government prepared and able to spend and cut taxes with little resistance.

I paid no attention to the old adage when I staked my claim on the bull in the election’s aftermath:

“In these cases where theme-based trading and investing first blasts off, it can be tempting to think you can outsmart the market. For example, you might think that the earnings power in some industry cannot possibly meet investor expectations. Or perhaps you look at recent technical history and conclude that a reversion will surely come once the market returns to its “senses.” I think differently. The market is telling us that something fundamental has changed about the market’s underlying conditions. At this stage, many theories may take months, maybe even a year or two to come to fruition…or to fail. In that time, you can miss a LOT of healthy gains…This is NOT the time to argue with the market. This is a time to follow it. Buying dips is the safest approach to playing the new themes.”

Almost one month later, the S&P 500 (SPY) has surged into overbought territory after a hiatus of 90 trading days and a bit of flirting with the overbought threshold. T2108, the percentage of stocks trading above their respective 40-day moving averages (DMAs), closed at 72.2% which is above the 70% threshold for overbought trading conditions. The 1.3% gain for the S&P 500 printed a fresh all-time high as part of a very bullish breakout.

The S&P 500 (SPY) breaks out to a new all-time high. Compare to the similar breakout on July 8th of this year.

The NASDAQ is starting to keep pace with the S&P 500 in a bullish move that represents broadening participation in the post-election rally.

Interestingly, the volatility index, the VIX gained on the day. I interepret this as a move by big money to buy put options to protect gains going into the close of the year…or a rush of skeptics betting that the market’s breakout represents the final stretch of a rubberband.

The volatility index (VIX) gained recovered from early losses and closed the day nearly reversing all the previous day’s loss.

A breakout to a new all-time high alongside overbought conditions is a very bullish combination. I am still uneasy with this breakout happening ahead of next week’s Federal Reserve meeting, but I am sticking with the bullish short-term trading call. I fully expect some turbulence around the Fed meeting and will treat a related dip in the market as a buying opportunity. Soon after the Fed should be a “Santa rally” and then there is January with a recovery in the stocks unfortunate enough to get caught in the crosshairs of counter-trend selling going into year-end.

Two potential January-effect stocks I have on my list are cybersecurity company Rapid7, Inc. (RPD) and solar company SunPower Corporation (SPWR).

I started accumulating shares in RPD after its last earnings report received a -17.8% reception. Since then, RPD has not gone much lower during a period of consolidation. RPD broke out of that range this week and is now angling to reverse its post-earnings loss. Overhead resistance looming from the converged 50 and 200DMAs are the biggest technical risks ahead.

Buyers returned to Rapid7, Inc. (RPD) in force over the past 4 days. Today’s 5.3% gain looks like it confirmed a bottom after a short period of consolidation.

In late September, I sold a 2018 put option on First Solar (FSLR) to play what I thought was the pattern of a beaten up stock finally printing a bottom. I turned out to be early. Next up is SunPower (SPWR). Today the stock soared 14.2% on news of job cuts as part of a restructuring. The company also reaffirmed 2017 guidance. I have put the stock on my radar as it now has the potential to rally well into January. Unlike FSLR, I am treating this as more of a short-term play with a very clear stop under the last low. The next earnings announcement will not likely come until February, so I am assuming this trade has some runway ahead of it.

SunPower (SPWR) is finally cleaning house. Is this the signal the market needed to buy into a bottom? The day’s rally took SPWR above its 50DMA for the first time since July.

The market’s breakout gave me a great start to my seasonal trade on iShares U.S. Home Construction ETF (ITB) call options. ITB’s 2.5% gain was another example of the breadth of the bullishness in the market.

The iShares U.S. Home Construction ETF (ITB) broke out to a 3-month high and looks ready to finish reversing the losses from its 50DMA breakdown.

The main blemish on today’s market action was the health care sector. In particular, drug companies came under fire yet again. This time it was President-elect Donald Trump issuing the bash. In a Time Magazine interview Trump had the following to say: “I’m going to bring down drug prices…I don’t like what has happened with drug prices.” Trump provided no specifics, but it was enough to bring back the sellers in force in iShares Nasdaq Biotechnology ETF (IBB). The 2.9% loss confirmed a 50/200DMA breakdown for IBB. The irony of the “Trump bash” is that IBB participated in the immediate post-election celebration. At the lows of the day, IBB finished a complete reversal of its post-election gain. A retest of the November low is now in play.

iShares Nasdaq Biotechnology ETF (IBB) breaks down again on yet another “bash.” IBB remains weighted down by large amounts of political risk.

Going forward, I plan to aggressively play the breakout in the S&P 500. I am hoping for an immediate pullback to at least the edge of the upper-Bollinger Band. Absent that, I will look for some kind of selling pressure going into or immediately following next week’s Federal Reserve meeting. Stay tuned.

As a reminder, here is my chart mapping the historical performance of the S&P 500 versus the duration of overbought periods. Recall that the 20 to 23 trading day mark is a key divider between modest gains and a large extended overbought rally. To accomodate the most bullish scenario, I will be targeting shares and January call options.

S&P 500 Performance By T2108 Duration Above the 70% Threshold

— – —

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

The charts above are the my LATEST updates independent of the date of this given T2108 post. For my latest T2108 post click here.

Related links:
The T2108 Resource Page

Be careful out there!

Full disclosure: long UVXY shares and short UVXY call options, short FSLR put options, long ITB call options, long RPD

(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: 65.1%
T2107 Status: 66.2%
VIX Status: 11.2
General (Short-term) Trading Call: cautiously bearish
Active T2108 periods: Day #225 over 20%, Day #45 over 30%, Day #44 over 40%, Day #42 over 50%, Day #36 over 60% (overperiod), Day #5 under 70% (underperiod)

Commentary
Last week began with a definitive end to the last overbought period. T2108, the percentage of stocks trading above their respective 40-day moving averages (DMAs), plunged from 70.8% to 64.0% in one day, yet the S&P 500 (SPY) lost just a fraction of a percent. The NASDAQ (QQQ) further confounded my T2108 trading rules that dictate aggressively bearish trades upon a drop out of overbought conditions by eking out out a GAIN on that day. For the rest of the week, the S&P 500 floundered just below its all-time high while the NASDAQ continued to leave the rest of the market behind by gaining 3 out of the next 4 days and hitting new all-time highs.

Thursday, January 11th was the second most interesting day of the week. President-elect Donald Trump held his first “wide-ranging” press conference in 167 days. Apparently, expectations were riding high and were soundly disappointed. The stock market first took a dip so deep that T2108 dropped all the way to 55%, a level last seen on November 15, 2016. However by the close, traders regathered their wits and returned to the regularly scheduled programming. The S&P 500 closed almost where it opened, and the NASDAQ closed a little higher than its open. Both indices printed marginal gains to end the topsy turvy week.

For the week, the S&P 500 mainly continued its churn near the top of its recent trading range capped by its all-time high.

The NASDAQ (QQQ) is slowly but surely creeping ever higher.

Trump’s reiteration of his desire to go after high drug prices sent the iShares Nasdaq Biotechnology (IBB) reeling for a second “Trump bash.” IBB recovered quickly from the first Trump bash. This second swoon stopped right at 200DMA support with a 2-day bounce to confirm a rapid halt to the selling. The next battle lines are well-drawn between the high and lows of the day.

“I think a lot of industries are going to be coming back. We have to get our drug industry coming back. Our drug industry has been disastrous. They’re leaving left and right. They supply our drugs, but they don’t make them here. To a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they’re getting away with murder.

Pharma, pharma has a lot of lobbies, a lot of lobbyists and a lot of power. And there’s very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don’t bid properly. And we’re going to start bidding and we’re going to save billions of dollars over a period of time.” – President-elect Donald Trump, January 11, 2017

The bashes that strengthen? Politicians keep bashing on the pharmaceutical industry, and yet IBB has demonstrated relative resilience since the first Hillary Clinton bash.

Thursday’s dip fooled me into thinking the market was confirming bearish trading conditions. Fortunately, the dip reversed so quickly that I did not have much of a chance to accumulate a lot of wrong-way trades. The return to regularly scheduled trading also means I go back to mainly waiting for some confirmation of the market’s next direction. I am still biased toward a downward move. My short-term trading call remains at cautiously bearish given T2108 recently dropped below over-bought conditions, and the S&P 500 has failed to break out to new all-time highs.

The volatility index, the VIX, ended the week sitting on its recent lows. Traders did try to goad the VIX higher on Wednesday and Thursday but to no avail. Complacency is simply too heavy right now.

The volatility index, the VIX, reflects complacency as deep as ever.

With the S&P 500 generally going nowhere, the lion share of my focus sat in forex (foreign exchange). The Turkish lira dominated the headlines; I wrote two articles on the dramatic moves in the currency. The U.S. dollar index (DXY0) resumed the selling from the previous week that took the index off its 14-year high. Suddenly, the U.S. dollar index is testing support at its 50DMA. Such a test has not happened since the election; the 50DMA has guided the U.S. dollar higher since early October.

The U.S. dollar index (DXY0) faces a critical test of support at its uptrending 50DMA.

Gold runs alongside forex. Looking backward, I see now that the SPDR Gold Shares (GLD) quietly carved out a bottom after the U.S. Federal Reserve hiked interest rates last month. Suddenly, a repeat of the response to 2015’s rate hike seems possible. GLD is already trading well above where it opened just ahead of the Fed. GLD’s 20DMA turned upward this month, and GLD printed a 50DMA breakout last week. A new high above the 50DMA will confirm the breakout and get me interested in making fresh short-term trades to the long side on GLD. Granted, this bottoming process perplexes me a bit. I interpreted the rise in gold after 2015’s rate hike as indicative of market fears that the Fed’s planned hikes for 2016 would crush the economy and lead to looser monetary policy all over again. This time around, 11-year high consumer sentiment, bullish stock market sentiment, and expectations for a robust Trumpflation economy all seem to work against the knee-jerk fears that come with a rate hike cycle. I admit that the chorus of bullishness seems strange given Wall Street supposedly prefers a divided government that gets little done, but I am content to follow the technicals…

Has SPDR Gold Shares (GLD) turned the corner and zipped past its post-Fed blues?

Interest rates have followed the U.S. dollar lower, and iShares 20+ Year Treasury Bond (TLT) has followed gold higher. A pairs trade between call options on a gold-related play and put options on TLT looks very attractive. I think dramatic moves in both are bound to occur in coming weeks or months as the Trump administration and Congress cooperate on launching an aggressive agenda.

The iShares 20+ Year Treasury Bond (TLT) tried to break out from 50DMA resistance but got pulled back toward flatline with 2015’s close.

Earnings season is in full swing and bank earnings were in full focus on Friday. I was hoping these earnings would spark a definitive resolution to a near 5-week long consolidation period. The Financial Select Sector SPDR ETF (XLF) managed to race out the gate toward the top of the recent range. However, over the course of the day, XLF waned and fell right back into the middle of the muck. XLF is the poster child for the grinding waiting game that almost all but the NASDAQ are playing.

With earnings failing to inspire a breakout for Financial Select Sector SPDR ETF (XLF), the lackluster trading volume so far for 2017 becomes an increasing concern for the sustainability of current price levels.

Finally, I am duly noting that T2108 has spent a LONG time trading above oversold conditions. The election came close to sealing the deal but instead the market rallied before T2108 took that one last step into oversold territory. So now T2108 has spent 225 days trading above the oversold threshold, the 20% overperiod. On a historic basis, such a feat is unusual, but the 20% overperiod could run 300 trading days before hitting truly rarefied space. Still, the performance of the S&P 500 (SPY) over this timespan is remarkable. The S&P 500 is up 22.0% since the current 20% overperiod began. This performance is well ahead of the 15% gain the T2108 trading model predicts if the 20% overperiod ended on the next trading day. In other words, this rally is very strong. Yet, unless this 20% overperiod ends as a historically strong run-up, the inevitable return to oversold conditions will likely occur via a substantial pullback.

S&P 500 historical performance during the T2108 20% overperiod.

— – —

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

The charts above are the my LATEST updates independent of the date of this given T2108 post. For my latest T2108 post click here.

Related links:
The T2108 Resource Page

Be careful out there!

Full disclosure: long SDS, long and short positions on the U.S. dollar, long GLD

President Trump will address a joint session of Congress on Tuesday night, February 28th. Traders will no doubt have notepads ready to jot down the latest corporate targets of Trump’s wrath and praise. Trump’s words and tweets move markets, yet recent impacts have not lasted and have even worked in reverse of expectations. It is time to think of Trump Trades more as short-term generators of volatility. Nimble traders can continue chasing the immediate reaction for however long it lasts. More circumspect traders can treat the volatility as a way to buy/sell into the pre-Trump trade at a better price; in other words, give consideration to the contrary case. In preparation for the potential trade-worthy aftermath of Trump’s address, I examine lessons from four recent Trump Volatility scenarios: Nordstrom (JWN), Intel (INTC), Cognizant Technology (CTSH), and the iShares Nasdaq Biotechnology (IBB).

Nordstrom (JWN)
On February 8th, Trump complained about Nordstrom dropping his daughter Ivanaka’s line of products from its stores. The market started to sell JWN shares, but, abruptly, buyers returned fire in force. By the end of the day, JWN was UP a startling 4.1%. JWN gained the next day as well. JWN churned from there but never returned to the price it had when Trump tweeted.

Nordstrom (JWN) survived Trump’s wrath by gaining in value. The reaction to earnings pushed JWN to a marginal 7-week high and a critical test of resistance at its 50-day moving average (DMA).

Source: FreeStockCharts.com

The day after Trump’s tweet, Trump counselor Kellyanne Conway underlined her boss’s outrage by encouraging viewers of “Fox & Friends” to go out and buy Ivanka’s products. JWN gained another 2.3% in the wake of that news.

Apparently, JWN’s decision had nothing to do with politics and everything to do with business. According to Yahoo Finance:

“Beyond people not wanting to purchase Trump-branded clothing, the core problem is actually entirely unrelated to politics. The real culprit is the dominance of athleisure, making Ivanka Trump’s structured dresses and pumps seem out of sync with how people dress these days — more casually, even to work.”

That assessment helps explain the lack of selling pressure. Perhaps the buying interest was out of relief that JWN was further rationalizing its product lines. To highlight the minor nature of this incident, JWN never referenced it until analyst Omar Saad from Evercore ISI pressed the issue. Peter Nordstrom responded. Here is the brief exchange from the Seeking Alpha transcript of the earnings call:

“…And I’m sorry I have to ask, did you see any change in trend in your business at all around the President’s tweets, whether it’s helped you or hurt you at all? Is there something you can comment on?”

“This is Pete. No, that would be negligible. I think it’s not really discernible one way or the other.”

Going forward, I think the Trump-effect is a non-issue for JWN except that it seems the immediate response may have washed out a sizable portion of motivated sellers (note that a whopping 21% of JWN’s float is already sold short). The reaction to the earnings report looms much larger now with the stock pressing against resistance at its 50-day moving average (DMA) and 200DMA resistance looming overhead. Note that the 13.0M shares traded were not as high as the trading volume from earnings last August.

Intel (INTC)
On February 8th, Intel CEO Brian Krzanich visited the White House to announce plans to invest in an Arizona factory. From Intel’s press release accompanying the visit:

“Intel Corporation today announced plans to invest more than $7 billion to complete Fab 42, which is expected to be the most advanced semiconductor factory in the world. The high-volume factory is in Chandler, Ariz., and is targeted to use the 7 nanometer (nm) manufacturing process. It will produce microprocessors to power data centers and hundreds of millions of smart and connected devices worldwide…

The completion of Fab 42 in 3 to 4 years will directly create approximately 3,000 high-tech, high-wage Intel jobs for process engineers, equipment technicians, and facilities-support engineers and technicians who will work at the site. Combined with the indirect impact on businesses that will help support the factory’s operations, Fab 42 is expected to create more than 10,000 total long-term jobs in Arizona.”

While the factory has been on the books for several years, Krzanich explained that Trump’s plans for corporate tax cuts and regulatory reform convinced the company to finally move forward with its plans. The market’s reaction to the visit with Trump was very mixed. On the day, the stock pivoted high and low around its 50DMA. The next day, INTC broke down in response to its analyst day. The selling ended the next day with a near picture-perfect test of support at its 200DMA.

I am not clear whether INTC’s job creation offset the U.S. portion of the 12,000 people that Intel announced it would layoff globally (11% of its workforce at that time). Intel broke the news last April as a part of its earnings announcement at the time. The stock is up 15.6% since then even with the recent pullback.

Intel (INTC) has knocked on 50DMA resistance 4 out of the last 6 trading days. A solid close on Friday suggests a breakthrough is imminent.

Source: FreeStockCharts.com

For INTC, Trump praise had little to no immediate impact on the stock besides intraday churn and volatility. The more important news came the next day with the stock moving in the opposite direction of the praise. INTC was another case where it was more important to think of trading around Trump Volatility rather than to look for a sustained reaction in support of the headline. Note that given my bullishness on INTC in between earnings, I used the selling to double-down on my between-earnings-trade.

Cognizant Technology (CTSH)
On January 29th, Bloomberg reported that Trump was drafting an executive order to strike at the H-1B VISA program. Indian information technology firms use this program to fly in workers for projects. The market reaction gapped Cognizant Technology (CTSH) down to a 4.4% loss. At the time, I noted the bearish technical implications of the selling. The selling came to a quick halt as traders awaited earnings. Once again, earnings news dominated the Trump headlines as CTSH soared right through 50 and 200DMA resistance. The following day, CTSH broke through its recent downtrend. The stock has crept higher ever since and looks poised for more with CTSH initiating “a robust capital return program” featuring dividends and a cash buyback.

Cognizant Technology (CTSH) quickly flipped from bearish to bullish from Trump to earnings.

Source: FreeStockCharts.com

It turns out Indian IT companies have been bracing for visa reform for ten years. They claim that they have been adjusting their business model to rely less on the H-1B visa. Still, various Indian IT firms quickly rallied to plan some lobbying to stave off damaging regulations. This episode surely brought back nightmares from the severe restrictions in the Immigration Reform bill that was proposed back in 2013.

If I had known about the industry’s preparation over the H-1B visa issue, I would have pounced on the selling as a potential pre-earnings buying opportunity… especially with this new Trump Volatility trading framework.

In its earnings announcement, CTSH addressed the issue head-on noting how it is already expanding local workforces. From the Seeking Alpha transcript of the earnings:

“We will also continue to invest extensively in training and re-skilling our team and in substantially expanding our local workforces in the U.S. and other local markets around the world where we operate, as agile development and the pervasive influence of technology increases the value of co-location and a consultative approach. To complement this organic investment, we are intensifying our efforts to acquire companies, expanding our intellectual property, industry expertise, geographic reach, and platform and technology capabilities. We’ve recently ramped up this activity and we expect to accelerate the pace further in 2017, while keeping to our strategy of focusing primarily on tuck-in acquisitions.

…we’ve been expanding our local hiring and retraining and so forth in various geographies around the world, but assumes essentially that we continue on that path with no significant changes in terms of immigration policy or so forth.”

CTSH noted that trying to anticipate relevant changes to U.S. immigration policy is too speculative an exercise right now for planning.

Needless to say, I will be buying the dips in CTSH going forward.

The iShares Nasdaq Biotechnology (IBB)
Across the political spectrum politicians have recently bashed the pharmaceutical industry. The words of three politicians have carried enough market weight to pressure IBB downward. Former Democratic Presidential candidate and Secretary of State Hillary Clinton kicked things off on the campaign trail for the Democratic primary in September, 2015 when she announced a coming plan to address price gouging on drugs. To my surprise, IBB has yet to recover from that bash. In fact, IBB has yet to even sustain a recovery from the second Clinton bash which came last August. Trump’s victory wiped out a bash from Senator and former Democratic Presidential contender Bernie Sanders. Two subsequent bashes from Trump looking for ways to lower drug prices first marked a post-election bottom and then second created a 3-week sell-off that was fully reversed by mid-February.

The iShares Nasdaq Biotechnology (IBB) has taken a lot of beatings for the past 17 months, yet a double-bottom has held since last summer.

Source: FreeStockCharts.com

At this point, IBB has survived a lot of negative headlines, political bashing, and selling. The chart above shows that IBB carved out a double bottom between February and June, 2016 that survived a test last November. I now assume that a sustainable bottom has finally arrived for IBB and future dips driven by political wrangling are likely buying opportunities. At least it should take more than words to keep IBB down going forward. If IBB breaks out to the upside from the current range… look out.

Parting Thoughts
These four cases represent a portion of the various Trump trades that have pervaded the stock market. I picked these stocks out as examples of how the Trump trade can work out in reverse of the initial or headline expectations. With many of the big programs becoming old news on Wall Street, the market should growing increasingly impatient to get specifics and legislation underway. Under these circumstances, I think short-term Trump Volatility will characterize the market’s reactions instead of the more sustained advance in the weeks following the November election.

Be careful out there!

Full disclosure: long INTC call options

AT40 = 43.3% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 60.5% of stocks are trading above their respective 200DMAs
VIX = 11.9 (volatility index)
Short-term Trading Call: neutral

Commentary
Times like these really put AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), to test.

The stock market’s underpinnings continued their slides on Wednesday with AT40 dropping to a level last seen the day after the U.S. Presidential election. AT200 (T2107), the percentage of stocks are trading above their respective 200DMAs, dropped in unison and confirmed the end of its uptrend. Bullish momentum has come to an end.

AT40 (T2108) traded below 50% for the first time since the day after the U.S. Presidential election.

AT200 (T2107) plunged to a new three-month low and confirmed the end of its post-election uptrend.

A trader may never guess at the weakening foundations while watching the S&P 500 (SPY) drip ever so slowly downward. The hardy index STILL did not close below the low of the day before its last bullish breakout – a threshold I have held out as the dividing line between a neutral and a bearish stance on the market.

The S&P 500 (SPY) fell a mere 0.2% and once again stopped short of triggering a bearish trading call.

The volatility index, the VIX, once again showed little interest in flagging trouble ahead.

The volatility index, the VIX, still shows little concern as it gained just 3.6% on the day. However, a bottom may be forming?

With this conflicting setup creating what looks like a “quiet” breakdown a week before the Fed meets, I decided to look at some other technical indicators related to AT40: T2114 and T2116. These indicators measure the percentage of stocks that are a certain distance below their 40DMAs. The bigger the number, the worse off the stock market is. T2114 measures the distance by one channel – think of it as a Bollinger Band channel or approximately one standard deviation. T2116 is two standard deviations. The charts below suggest there is increasing stress under the hood of an otherwise serene market. A quiet breakdown is indeed underway. The upshot is that a fresh BUYING opportunity will likely accompany these indices on a retest of former highs. In other words, whatever extended sell-off awaits around the corner will likely be shallow and brief (don’t blink?).

T2114, the percentage of stocks trading “one standard deviation” below their respective 40DMAs, returned to pre-elections levels and confirmed increasing stress among stocks.

Like T2114, T2116, the percentage of stocks trading TWO “standard deviations” below their respective 40DMAs, fell to pre-election levels and confirmed growing stress under the relative calm of the market.

The new high / new low ratio (T2117) also helps display the sudden change in market momentum. New highs went from close to 100% of the total of stocks making new 52-week highs and new 52-week lows on March 1st (93.5%) to just 32.7% one week later.

The New High / New Low ratio (T2117) has taken a sudden and abrupt turn for the worse: its lowest point yet since the aftermath of November’s presidential election.

A large drop in oil prices drove a good portion of the incremental stress and breakdowns. From Barron’s (“Oil (GASP) Plummets”):

“The U.S. Energy Information Administration reported that domestic crude supplies for last week came in 8.2 million barrels higher. That means total commercial inventories hit a weekly record level of 528.4 million — its ninth consecutive climb.

The EIA also raised its forecast on crude production for this year and next. This year crude production will average at 9.21 million barrels a day, up from the previous 8.98 million forecast. In 2018, output is expected to hit 9.73 million barrels, up slightly from the 9.53 million call.”

The big surprise inventory build took out the oil complex in profound ways. The Energy Select Sector SPDR ETF (XLE) sliced right through critical support.

The Energy Select Sector SPDR ETF (XLE) sliced through 200DMA support with a 2.6% loss.

When I pointed out the breakdown in VanEck Vectors Russia ETF (RSX) and made a play on the Direxion Daily Russia Bear 3X ETF (RUSS), I vaguely assumed something Russia-specific was brewing even as other emerging markets were hurting. Now it looks like traders were trying to get ahead of the oil plunge?

The VanEck Vectors Russia ETF (RSX) dropped 2.5% as selling extended the 50DMA breakdown

Stocks across the commodity complex continued to suffer. My play on Freeport McMoran (FCX) looks certain to fail now that FCX has punctured 50DMA support.

Freeport McMoran (FCX) broke down below 200DMA support as it continued to tumble through its downward trending lower-Bollinger Band (BB) channel.

A resurgent U.S. dollar index (DXY0) likely added to the weight on the commodities complex. The dollar finished a complete recovery from last week’s selling that accompanied Janet Yellen’s speech last week. An extremely positive number from the ADP employment report pushed rate expectations ever higher.

The U.S. dollar (DXY0) finished recovering its loss from last week’s “sell the news” reaction to Fed Chair Janet Yellen’s speech which affirmed the coming of a March rate hike.

The U.S. dollar punched the Australian dollar, an important commodity currency, through 200DMA support.

Gold and silver could not withstand the pressure. Both SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) cracked through critical support at their respective 50DMAs.

The SPDR Gold Shares (GLD) gapped down and broke down below 50DMA support for a 0.6% loss.

The iShares Silver Trust (SLV) accompanied GLD in breaking 50DMA support.

So it looks like I got a bit too cute in closing out my gold versus bonds pairs trade and applying the profits on the put options on the iShares 20+ Year Treasury Bond (TLT) to more GLD call options. Per plan, I did rush back into TLT put options as gold’s weakness continued. I flipped those for a small profit on TLT’s gap down. Extremely bullish silver speculators are likely mightily hurting now.

The iShares 20+ Year Treasury Bond (TLT) gapped down to the bottom of its recent trading range. Buyers stepped in from there.

The breakdown theme played out with small caps as well. The iShares Russell 2000 (IWM) gave up its 50DMA support and put in play its 2017 low.

The iShares Russell 2000 (IWM) broke down below 50DMA support and put 2017 lows into play.

Last week I pointed out how Tesla (TSLA) just missed confirming a bullish bounce off 50DMA support. Today, TSLA returned to a bearish setup by following the day’s breakdown theme…

Tesla (TSLA) closed below 50DMA support for the first time since last December.

There were a few brights spots of note.

The iShares Nasdaq Biotechnology (IBB) proved out my observation that President Trump’s market moving power has transitioned to one of causing volatility that the market reverses relatively quickly. On Tuesday, President Trump once again talked lower drug prices for Americans, and once again IBB reacted by selling off. THIS time, IBB bounced right back the next day. I bought a call option on the pullback form the high of the day.

The iShares Nasdaq Biotechnology (IBB) rebounded immediately from Trump’s latest bash.

Financials actually gapped up to start the day. The subsequent selling closed out the Financial Select Sector SPDR ETF (XLF) with no gain.

Financials helped prevent a larger market decline by closing flatline. The Financial Select Sector SPDR ETF (XLF) even gapped up before succumbing to sellers.

Even Snap Inc. (SNAP) provided a bright spot. SNAP followed-through on my bullish reversal on the shares. Once again, the 5-minute chart shows the dynamism in the SNAP trade. This granularity has helped me spot key pivot points. Notice how SNAP reversed the opening gap up before powering higher. That is bullish follow-through on an attempt to carve out some kind of bottom.

Snap Inc. (SNAP) gained 6.4% on the day after a wobbly open and failing to hold its intraday high.

Even homebuilders had a good day, presumably on the strong jobs outlook.

The iShares US Home Construction (ITB) gained 1.3% in a rare demonstration of relative strength. ITB now trades at a new 9+ year high.

Overall, it looks like next week’s meeting of the U.S. Federal Reserve will produce an imortant and telling pivot point for the market. Start bracing now as the coming week could be a race against all the “quiet” breakdowns in the stock market.

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #264 over 20%, Day #84 over 30%, Day #83 over 40% (overperiod), Day #2 under 50% (underperiod), Day #5 under 60%, Day #30 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long UVXY call options, long SNAP, long and short U.S. dollar currency pairs, long RUSS, long FCX call options, long GLD shares and call options, long SLV

AT40 = 68.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 65.4% of stocks are trading above their respective 200DMAs
VIX = 10.9 (volatility index)
Short-term Trading Call: bullish

Commentary
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), pushed into overbought territory today with an intraday high of 72.7%. AT40 pivoted around the 70% threshold over and over before closing the day in retreat. The close of 68.1% leaves my favorite technical indicator tantalizingly close to a status it last obtained 70 trading days ago on January 25, 2017 (for one precious day).

The S&P 500 (SPY) fell just short of 2,400 before fading to a flat close. If buyers do not step back in quickly, the index will risk a full retreat to 50DMA support (where I will happily reload on S&P 500 longs).

The S&P 500 (SPY) quickly went from spry to exhausted. Support at the 50DMA may be in play already.

I strongly prefer some venting of steam here because hitting overbought status with the S&P 500 stretched above its upper-Bollinger Band (BB) would force me to temper my bullishness. A pullback to or close to 50DMA support would allow some room for AT40 to cross 70% without the S&P 500 in an over-stretched state.

The volatility index, the VIX, did not benefit much from the day’s reversal (which presumably was the market’s way of welcoming the announcement of President Trump’s tax plan – sell the news and/or acknowledgement of the rough road ahead).

The volatility index remains at a near 3-year low.

In my last Above the 40 post, I neglected to point out the big move to all-time highs by Netflix (NFLX). Last week, I shorted NFLX based on what looked like a confirmed 50DMA breakdown. The stock promptly turned around and closed above its 50DMA on Monday….where I was supposed to hit a stop loss. I forgot to set up that trade, and on Tuesday I paid dearly. The main saving grace is that I had a very small position. This was a good lesson and reminder on maintaining discipline around stop loss points. (I will now bail on a new all-time high).

Netflix (NFLX) recovered its post-earnings loss with a fresh surge and breakout.

I also forgot to note that I sold and locked in profits on my call options on CurrencyShares Euro ETF (FXE). FXE printed a fantastic breakout above 200DMA resistance thanks to the French Fly. However, with FXE trading well above its upper-Bollinger Band (BB) I was compelled to sell (this is one of my regular sell rules to avoid getting caught up in an over-stretched move). Today, FXE gapped down below 200DMA support, gave back all of Tuesday’s gains, and then rallied back. I prefer this kind of volatility for the forex trading.

The CurrencyShares Euro ETF (FXE) made a bullish 200DMA breakout, but it now needs to confirm the move especially after today’s gap down.

EUR/USD is more clearly bullish with a 200DMA breakout immediately following the French Fly and trading at a 5-month high.

There have been some very dramatic post-earnings implosions this week that I am tracking. Express Scripts (ESRX) fell over 10% following an earnings report which included the bad news that Anthem (ANTM) will not renew its contract with ESRX. The stock made an impressive bounceback to its lower-BB, but I am looking for an entry to short. ESRX has struggled since a huge swoon in early 2016.

Express Scripts (ESRX) confirmed its weakness with a fresh round of bad news.

U.S. Steel (X) shocked investors with a major downward revision of forward guidance due to substantial investments the steel company needs to make. It seems X was a classic case of too much focus on the boost from government boosterism (through trade policies) and too little focus on the way X was boosting its results by avoiding re-investment in its business (see Seeking Alpha summary). I now wonder whether investors have become overly short-sighted in one fell-swoop. I am targeting a buy on a new post-earnings high. Perhaps I will do a hedged trade after volatility settles down a little more in a few more days.

Add U.S. Steel (X) to the list of trades that have reversed all its post-election move. The post-earnings gap down pushed X back into its post-election gap up.

While I was editing this piece, the Trump Administration made a major announcement on NAFTA:

“President Donald Trump on Wednesday told the leaders of Mexico and Canada that he will not immediately pull out of the North American Free Trade Agreement, just hours after administration officials said he was considering a draft executive order to do just that…

‘President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” said the White House.'”

I found the news after wondering why the Canadian dollar was strengthening so rapidly. I decided to fade the move after seeing the news…

So far, so good.

USD/CAD was at a 14-month high when the NAFTA news dropped. I like accumulating a position as long as the currency pair trades within the uptrending upper-Bollinger Bands. Note how USD/CAD twice struggled to remain above its upper-BB.

I am reminded that speculators recently flipped to net short the Canadian dollar (FXC). So I suspect that the rapid plunge on the NAFTA news was simply a quick trigger reaction by shorts rushing to cover.

Speculators have not been this negative on the Canadian dollar (FXC) since early 2016.

Source: Oanda’s CFTC’s Commitments of Traders

Ever since speculators flipped the script on their bullishness on the Canadian dollar, I have been looking for a spot to get aggressively short against the Canadian dollar. I think this might be the moment, but my new position is relatively small in preparation for potential accumulation closer to the bottom of the upward trend channels on both GBP/CAD and USD/CAD.

Be careful out there!

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #298 over 20%, Day #118 over 30%, Day #8 over 40%, Day #5 over 50%, Day #3 over 60% (overperiod), Day #70 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long call and put options on UVXY, short NFLX, short the Canadian dollar

*Note QQQ is used as a proxy for a NASDAQ-related ETF

AT40 = 58.6% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 58.5% of stocks are trading above their respective 200DMAs
VIX = 10.7 (volatility index) (intraday high of 12.11)
Short-term Trading Call: cautiously bullish

Commentary
It seemed poetic. The Golden State Warriors, hailing from the tech heavy San Francisco Bay Area, were beaten suddenly, thoroughly, abruptly, and relentlessly off a sky-high sugar high (a very convincing 3 games to none lead in the 2017 NBA finals). So were tech stocks.

LEBRON JAMES REALLY DID THIS IN THE NBA FINALS pic.twitter.com/PsXfQC2k0a

— Yahoo Sports (@YahooSports) June 10, 2017

The NASDAQ took a serious shellacking just one day after confirming a bullish undercurrent for the market with another all-time high.

While the carnage in big cap tech stocks was painfully clear – the PowerShares QQQ ETF (QQQ) declined 2.5% and the NASDAQ Composite declined 1.8% – most of the remaining stock universe was blissfully unaware of the pain.

My favorite technical indicator, AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), says it all. AT40 increased a solid 6.5 percentage points from 52.1% to 58.6%.

AT40 (T2108) ignored the carnage in big cap tech and soared to a new 5 week high. AT40 looks much healthier now.

Even AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, confirmed the rally in most everything else not related to big cap tech. T2107 gained 3 percentage points to close at 58.5%.

AT200 (T2107) is on the edge of erasing the previous breakdown.

The S&P 500 (SPY) did its part to offset tech weakness by holding its ground with a flat close. The index even gave up an opening rally to a new all-time. At the lows, the S&P 500 erased all the gains from last week’s breakout. It was a wild swing.

The S&P 500 (SPY) wavered from a new all-time high to a full reversal of last week’s breakout before settling at flat on the day.

Given the divergence between tech and the rest of the market, I decided to take a look at the PowerShares S&P 500 Low Volatility ETF (SPLV) versus the PowerShares S&P 500 High Beta ETF (SPHB). I was quite surprised to see that the High Beta crew has struggled all year to regain traction. Meanwhile, SPLV broke out to a new all-time high on May 22 and has rallied ever since. In previous posts on these ETFs, I have argued that a rally built on the success of the relatively sedate SPLV alone is a short-lived one. Clearly that is not the case here!

The PowerShares S&P 500 High Beta ETF (SPHB) has gone absolutely nowhere this year…

…While the PowerShares S&P 500 Low Volatility ETF (SPLV) has enjoyed a particularly strong 2017 with two big breakouts.

While the S&P 500 performed relatively much better than the NASDAQ, the source of market bullishness came from smaller stocks and specific sectors. The strength in the market showed up in several indices: small-caps (IWM), mid-caps (MDY), even retailers (XRT). Most importantly, the financials (XLF) broke out and invalidated the bearish head and shoulders (H&S) pattern I have been watching (which continues a rich tradition of H&S failures).

The iShares Russell 2000 (IWM) hit a (marginal) new all-time high. IWM is on the verge of confirming a very bullish breakout from an entire 2017 of bouncing around a trading range.

The SPDR S&P MidCap 400 ETF (MDY) is like IWM except its trading range has had an ever so slight upward tilt.

The SPDR S&P Retail ETF (XRT) soaked up the interest of value shoppers. It rallied off recent lows with a 1.4% gain.

The Financial Select Sector SPDR ETF (XLF) has suddenly come back to life. XLF closed the week with a breakout that invalidated the looming head and shoulders topping pattern.

Excluding the retailers, these charts stand in stark bullish contrast to the near implosion by big cap tech stocks.

Even biotech stocks held their own at the close, albeit off a one month intraday high.

The iShares Nasdaq Biotechnology (IBB) held above 50DMA support after it faded off a one month high.

The volatility index, the VIX, provided the icing on the cake. The sudden implosion of big cap tech stocks put enough fear in the market to send the VIX soaring all the way to 12.1, a 14.2% gain. The irony of the sudden burst is that it made my fistful of call options on ProShares Ultra VIX Short-Term Futures (UVXY) quite profitable the day AFTER I thought I needed them most. Per my strategy, I sold quickly into the spike. True to form, volatility imploded almost as quickly as it exploded. After the dust settled, the VIX closed with a much smaller gain of 5.3% and UVXY closed with a very sharp fade to a paltry (and under-performing) 2.8% gain.

The ProShares Ultra VIX Short-Term Futures (UVXY) experienced another brief bout of glory.

The sharp implosion of the VIX off its high confirmed the generally bullish tone of the day. The close is right back in extremely low territory (below 11).

The declines in the big-cap tech stocks were truly stunning. Here is a sample with a listing of the closing loss and the loss at the low of the day: Netflix (NFLX) -4.7%/-7.0%; Alphabet (GOOG) -3.4%/-4.8%; Amazon.com (AMZN) -3.2%/-8.2%; Facebook (FB) -3.3%/-5.2%; Apple (AAPL) -3.9%/-5.8%. These losses represented some SERIOUS profit-taking that surely helped fund rallies in the rest of the stock market. AAPL had some stock specific news that exacerbated its woes. From Bloomberg:

“Verizon Corp., AT&T Inc. and the rest of the U.S. wireless industry have a big boast for this year’s crop of smartphones: thanks to network upgrades, devices will be able to download as much as a gigabit of data in a single second — speeds 100 times faster than before.

But that won’t be the case for Apple Inc.’s newest iPhones, devices to go on sale later this year, leaving the company’s most important product potentially lagging behind the data performance of rival smartphones.

The reason stems from the delicate and sometimes complicated way Apple manages the supply of the components embedded in its flagship device — in this case, the modems, which handle the connection between a phone and the cellular network. One of Apple’s suppliers, Qualcomm Inc., sells a modem capable of the 1 gigabit download speeds. Another supplier, Intel Corp., is working on a modem with the same capability, but it won’t be ready for the iPhone’s introduction, according to people familiar with Apple’s decision.”

Even so, I think AAPL’s large loss on the day was largely in sympathy with its big cap cousins. I bought AAPL weekly call options on the initial weakness with what I thought at that time was a low ball offer. I doubled down as Apple doubled its loss on the day.

Apple (AAPL) managed to bounce off its intraday low to close right above its 50DMA – a line that has held as support since December, 2016.

As I stated in my last Above the 40 post, I was poised to get aggressively bullish on the stock market if XLF (financials) invalidated the H&S topping pattern. I did not count on a big piece of the market failing to cooperate. The plunge in tech was damaging enough to keep my short-term trading call at cautiously bullish. I think another major buying opportunity is coming for big cap tech stocks, but traders should exercise enough patience to let this apparent rotation of funds work itself out. A potential catalyst could be the Federal Reserve meeting on Wednesday June 14th. I imagine the rally in financials will peak around that time. Subsequently, traders should return their attention to tech stocks which will show signs of bottoming out from whatever selling pressure remains.

Still, it will be hard to get re-excited about tech stocks like Nvidia (NVDA) which rallied to a fresh all-time high only to plunge below the low of the previous day – a classic bearish engulfing top. At least buyers rallied NVDA off its lows and back to the start of the previous day’s gap up. I suspect from here NVDA will take time to heal. NVDA lost 6.5% on the day but was down as much as 10.7% – yep, in one day!

Nvidia (NVDA) printed a classic bearish engulfing top.

Let’s see whether the Golden State Warriors are ready to lead the charge for tech stocks to bounce back from a wicked day of selling. The sweep broom was broken but not the trend…

LeBron James finally has something to celebrate in the 2017 NBA Finals. Go Dubs.

Source: Yahoo Sports

Be careful out there!

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #326 over 20%, Day #146 over 30%, Day #13 over 40% (overperiod), Day #2 under 50% (underperiod), Day #28 under 60%, Day #98 under 70% (corrected from June 2, 2017 post)

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long AAPL call options, long NVDA call and put spread and shares

*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies.

AT40 = 47.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 54.7% of stocks are trading above their respective 200DMAs
VIX = 10.8 (volatility index)
Short-term Trading Call: cautiously bullish

Commentary
Like two ships passing in the night, the NASDAQ, including the PowerShares QQQ ETF (QQQ), took back its advantage in the game of relative performance over the S&P 500 (SPY). The S&P 500 lost just over a point on the day and at one point finished filling Monday’s impressive gap up. The NASDAQ started strong and stayed strong enough to return to the week’s high (a 0.8% gain).

The S&P 500 (SPY) finished reversing its impressive gap up that started the week. At least the 20-day moving average (DMA) held as uptrending support.

The NASDAQ powered its way back to the high of the week and looks poised again to recover its all-time high.

Having forgone the opportunity on Monday to lock in profits on my QQQ call options, I jumped at that same chance today. The options expire Friday so I could not afford the risk of another setback. Unfortunately my likely loss on the call options on ProShares Ultra VIX Short-Term Futures (UVXY) will exceed those profits. The volatility index, the VIX, lost 1.0% on the day while UVXY lost 2.1%.

While none of these moves – SPY, QQQ, or UVXY – are particularly notable by themselves, they stand in contrast to AT40 (T2108), the percentage of stocks trading above their respective 40DMAs. AT40 dropped from 52.8% to 47.1%, back to a 2-week low.

Adding to the warning signs were two other favorite indicators: the Australian dollar (FXA) versus the Japanese yen (JPY) or AUD/JPY and Caterpillar (CAT). I just finished applauding AUD/JPY as a confirmation of the bullish tone of the market. My favorite forex indicator cracked 200DMA support on Tuesday and the selling continued on Wednesday.

AUD/JPY is wavering right at the edge of a breakout with very bullish implications.

I did not see any news to explain Wednesday’s sudden high-volume 3.3% loss. Perhaps it was a much delayed reaction to May’s retail data reported on Tuesday? Until proven innocent, I am interpreting CAT’s selling as bearish. I already have one put option in place, but I probably need a lot more soon.

Caterpillar (CAT) suddenly tumbles from a near 3-year high.

Some of the usual suspects were at work contributing to the weakness in AT40 – retail, energy, and mid-caps. Some auto-related stocks and shoe retailers cowered in the center of retail ugliness today.

Carmax, Inc. (KMX) reported strong headline earnings. In response, the stock gapped up and gained over 7% at its high. After that, the stock completely imploded. In an earlier Above the 40 post I noted I was going to look for a post-earnings excuse to get short KMX again. However, based on the open, I thought KMX could rally to a 10% gain or higher. So I failed to pull the trigger until KMX bounced off its low of the day toward 200DMA resistance. Even then, I took half a position and bought a call option as a hedge.

Carmax (KMX) displayed one of the ugliest post-earnings gap and crap I can imagine. Its implosion form the high of the day plunged the stock back through its 50 and 200DMAs. The stock barely avoided a loss for the day!

KMX managed to close in the green, but auto parts stocks were not so lucky. For example, Autozone (AZO) lost 1.9% and closed at a near 2 1/2 year low. The daily chart shows how pesky Amazon.com (AMZN) rumors presaged the current troubles (AMZN is like a phantom looming menacingly in retail’s shadows!); AZO is down 22% since then.

Autozone (AZO) is down 27% year-to-date…

Autozone (AZO) gained about 6x post-recession. It is now up 4x after spending 2016 forming a rounded top.

Footlocker (FL) led the way down for shoe retailers as Goldamn Sachs (GS) released a report claiming that Nike (NKE) is close to signing a direct distribution deal with Amazon.com (AMZN). FL was down around 10% at its lows before buyers stepped up. Given FL’s existing troubles, I expect the selling to resume in due course. Note that while FL has lost 39% since mid-May, the stock is still on an incredible post-recession run after trading in the low single digits at one point!

The change in sentiment on Foot locker (FL) is very clear as a severe breakdown continues apace.

Last month, Best Buy (BBY) was providing some anti-Amazon hope for retail. After earnings, BBY rocketed up to an all-time high, and I noted the irony given how often BBY was supposed to be doomed by competition from AMZN. Yet, BBY failed to maintain the momentum. The post-earnings rule to fade BBY at the open is now up 3.9%. I think a test of uptrending 50DMA support is coming if not an outright gap fill. Note carefully how volume fell off a cliff over the past three days: a 50DMA test could be a major buying opportunity.

Did Best Buy (BBY) leave its best days behind?

Intel (INTC) is falling behind the big cap tech pack. My last tranche of the “between earnings trade” looks like a complete bust as INTC this week confirmed a 50/200DMA breakdown and even gapped down today. Analysts have come after INTC with downgrades. I do not know what to make of this beating, but I suspect I might try a pre-earnings play next month.

Intel (INTC) is down 4.7% year-to-date and has proven unable to hold 50/200DMA support for long.

The mood is very different in the biotech sector. The iShares Nasdaq Biotechnology (IBB) rocketed 4.1% today on a second day of very high buying volume. IBB is above its price of every single “bash” except Hillary Clinton’s first campaign-related bash from almost two years ago. IBB finally looks poised to overcome that last hurdle.

This week, the iShares Nasdaq Biotechnology (IBB) broke out from almost 18 months worth of consolidation patterns.

If current rumors are true, IBB should trade above all the recent bashes. Apparently, the drug price plan coming from the Trump administration will fall far short of Trump’s campaign and presidential promises. The rumors are apparently coming to a climax this week after a report from Politico titled “Trump’s drug price ‘remedy’ expected to be industry friendly” last Friday. From the article:

“The administration is not proposing, as Trump did on the campaign trail, that the government negotiate drug prices or allow the importation of cheaper drugs from abroad. At a meeting Friday, top Trump administration officials reportedly made little progress on even on more modest goals that are said to be an executive order on drug prices, which the White House is pushing to release…

‘Our industry sources indicate that pharma expects it has successfully shifted the dialogue from the high price of innovation to transparency and other parts of the supply chain,’ Wells Fargo analyst David Maris wrote in a note to investors Thursday evening. ‘As such, several drug company executives have expressed the belief that Trump’s drug price approach will not include drug re-importation and Medicare negotiation of drug prices.’

The industry’s growing confidence comes in part from the presence of key allies in the White House: Joe Grogan, OMB’s director of health programs, is working on the executive order, according to multiple sources inside and outside of the government. Grogan spent the last five years as the head of federal affairs for Gilead Sciences — the drug company that helped ignite the drug pricing debate in 2013, when it set the price of a new hepatitis C treatment at more than $80,000.”

Buying IBB in the wake of THAT article would have made for a great Trump Trade.

Be careful out there!

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #339 over 20%, Day #153 over 30%, Day #20 over 40%, Day #7 over 50% (overperiod), Day #2 under 60% (underperiod), Day #99 under 70% (corrected from June 9, 2017 post by doing complete recount!)

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long INTC call options, short KMX, long KMX call option, long CAT put option, short AUD/JPY, long FL put spread and call options, long AMZN call option, long GS call options

*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies.

AT40 = 53.7% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 56.5% of stocks are trading above their respective 200DMAs
VIX = 11.1 (volatility index) (11.7% gain)
Short-term Trading Call: cautiously bullish

Commentary
Suddenly, tech stocks are in trouble all over again.

On June 9, 2017, tech stocks suddenly swooned, seemingly out of nowhere, just a day after setting another record high. On June 27th, the NASDAQ closed at its lowest level since May 22, 2017 with a 1.6% loss on the day. The tech-laden index is also effectively retesting uptrending support at its 50-day moving average (DMA) for the first time since mid-April.

The NASDAQ suddenly careens into a retest of its uptrending 50DMA support.

The PowerShares QQQ ETF (QQQ) cleaved through its uptrending 50DMA support and closed at its (marginally) lowest level since May 19th.

While everyone will now stare at the NASDAQ’s big retest, the PowerShares QQQ ETF (QQQ) already failed its retest with a 1.8% loss on the day. QQQ has not confirmed a topping pattern – that would require a close below the big May 17th swoon. Yet QQQ trading has surged particularly on down days. So Tuesday’s follow-through selling was sufficient to make me a lot more wary about tech stocks. I started off the week bullish on tech and ready to buy. I set up low ball offers on call options on QQQ and Facebook (FB). I thought I got good deals until Tuesday. After Tuesday’s open I added to my positions only to soon realize that “something” was not quite right. Once a more bearish interpretation of the trading action crept into my conscious, I jumped into put options on Apple (AAPL), including fading a surprising intraday rally into positive territory.

Since I noted AAPL’s relative underperformance last week among the “usual suspects,” I was taken a bit by surprise when AAPL traded in the green. AAPL ended up closing with a 1.4% loss (and I locked in my profits on the put options as a way to significantly allay losses on QQQ and FB) and fared better than its contemporaries…

• Amazon (AMZN): -1.7% – still above 50DMA.
• Facebook (FB): -2.0% – retesting 50DMA support.
• Alphabet (GOOG): -2.6% – broke 50DMA support for first time since April, 2017.
• Nvidia (NVDA): -3.7% – lowest close since June 2, 2017.
• Netflix (NFLX): -4.1% – broke 50DMA support after a brief 2-day breakout. Late in the day, I speculated on a quick bounce by buying a single call option.

Given this swing from relative under-performance to over-performance, I took a quick look at the data to determine whether AAPL has exhibited any pattern of behavior relative to these stocks. I looked at the daily change in prices for year-to-date for all these stocks. I counted out how many times AAPL printed the minimum or the maximum price change of the day. Surprisingly, AAPL was the minimum 16% of the trading days and the maximum 17% of the time. This performance is exactly what I would expect if daily positioning was random (1/6 = 17%). I hope to examine these data further to refine the positioning analysis further.

The S&P 500 (SPY) fared better than the NASDAQ (perhaps thanks to financial stocks). The index lost 0.8% but it made its lowest close since May 31st. A 50DMA retest is definitely in play.

The S&P 500 (SPY) finally broke support at its uptrending 20DMA.

The technical damage on the indices helped to drive a wake-up call on the volatility index. The VIX shot up 11.7% to close at 11.0. Still, the VIX remains well within the recent trading range.

The volatility index, the VIX, jumped back to the top of its recent trading range.

The iShares Nasdaq Biotechnology (IBB) took a major 2.7% hit that suggests the recent sharp rally has come to a screeching halt. In parallel, the U.S. Senate delayed a vote on Trumpcare until next month.

The sharp rally for the iShares Nasdaq Biotechnology (IBB) came to a screeching and abrupt halt on a 2.7% loss on the day.

With all the technical damage on the major indices, I expected AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, to suffer an outsized drop. Instead, it benefited from Monday’s impressive performance and closed about even with Friday’s close.

Another big story on the day was the euro (FXE). Mario Draghi gave a speech that was generally interpreted as incrementally more hawkish. I was caught without a new long position, and I had to scramble to long EUR/USD and EUR/AUD, two of the euro currency pairs that did not look over-extended. I took profits on both positions prior to and during Asian trading hours.

The euro soared against major currencies and broke out against the U.S. dollar to a new 10-month high (EUR/USD)

Surprisingly, the Japanese yen (FXY) greatly weakened in parallel. The yen’s weakness sent AUD/JPY to a new 3-month high.

The Australian dollar confirmed its bullish 200DMA breakout against the Japanese yen (AUD/JPY)

I thought the pounding on the yen would have generally bullish implications for the stock market but a rebound never materialized. Perhaps it was the parallel increase in long-term interest rates…which surprisingly did not help the U.S. dollar against other major currencies.

The iShares 20+ Year Treasury Bond (TLT) gapped down on the day – did that bring the current rally to an end?

So overall the redux for tech troubles puts my bullish trading call in its greatest peril since I made the switch on May 25th. In the fact, the S&P 500 (SPY) is now almost flat over that time. I will go back to neutral if the index closes below its 50DMA.

Be careful out there!

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #343 over 20%, Day #157 over 30%, Day #24 over 40%, Day #3 over 50% (overperiod), Day #6 under 60% (underperiod), Day #103 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long call options for QQQ, FB, and TLT, short AUD/JPY

*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies.

Teva Pharmaceuticals (TEVA) lost 24% last Thursday after reporting disappointing earnings. From the Seeking Alpha transcript of the conference call:

“All of us at Teva understand the frustration and disappointment our shareholders are feeling…

In our U.S. Generics business, we experienced accelerated price erosion and decreased volume, mainly due to customer consolidation, greater competition as a result of an increase in generic drug approval by the FDA, and some new product launches that were either delayed this quarter or got subjected to more competition..

…we expect to have no contribution from our businesses in Venezuela to earnings in the last two quarters of 2017…”

To fix the issues:

“…we are focusing on streamlining our businesses to meaningfully reduce our cost base…We recently concluded a full review of our specialty R&D pipeline with the assistance of an experienced outside adviser in order to rationalize and focus our pipeline assets and maximize return on investment. We are also in the final stages of engaging world-class consulting firm to support our U.S. Generics business. We like the full potential of these assets in light of the evolving environment…

…our board has authorized a reduction in our cash dividend by 75% to $0.085. This reduction represents approximately $260 million of cash per quarter.”

Investors clearly had no patience for any of this news. After three full days of non-stop selling and a devastating downgrade from Morgan Stanley (MS) going from equal to under-weight, TEVA has lost a stomach-churning 40.5% since its earnings.

The on-going weakness in Teva Pharmaceuticals (TEVA) accelerated into a 40.5% post-earnings loss.

The U.S. generics business is part of Teva’s troubles. A massive $40.5B deal Teva closed with Allergan (AGN) exactly two years ago sits right in the middle of those troubles. At the time, TEVA traded at an all-time high…and its ultimate peak. TEVA is down a stomach-churning 74.2% from that point. I note the irony because AGN still trades around the same price it had at the time of the deal’s announcement. Moreover, AGN came out of the deal with a 10% ownership in TEVA. Allergan’s stock is down slightly in sympathy with TEVA’s woes.

Allergan (AGN) is caught up in the TEVA mix with its 10% stake. The stock is facing down a critical test of support at its 50-day moving average (DMA).

In a timely appearance, Allergan CEO and Chairman Brent Saunders appeared on Jim Cramer’s Mad Money show to talk about the business and its recent earnings report. At the beginning of the discussion, Saunders made it clear that selling AGN because of its TEVA stake made no sense: AGN holds 10% of TEVA worth “a couple of billion dollars” while AGN has “several billion dollars in cash.” AGN promised the market from the start of its deal with TEVA that the TEVA holding was not a long-term investment. The lock-up on the shares expired just a few days ago, but AGN plans to sell its stake in a “responsible way” over the next several quarters. My ears perked up when Saunders claimed that selling TEVA at current prices “doesn’t make much sense.” That was all I need to hear to sense a potential trading opportunity.

Firstly, after three days of heavy selling, TEVA is due for a large relief bounce: a lot of weak hands likely shook themselves out in this relentless selling. A relief bounce should also be due to the extent investors panicked out the stock to get ahead of AGN’s sales. Now we know the AGN overhang is at higher prices. As with most of these rebound trades, I am initially targeting a return to the lower-Bollinger Band (BB) which is now around $22.25.

It is possible that generics competitor Mylan (MYL) is also an opportunity. Mylan completes the irony of TEVA’s current troubles as TEVA made a last hour switch from pursuing MYL to AGN two years ago. Fast forward to today, and MYL sold off in sympathy with TEVA’s woes. Morgan Stanley added a downgrade to MYL for good measure.

While I remain a skeptic/critic of the company, I still have my eye on the bonus promised to CEO Heather M. Bresch if she can drive earnings per share to $6.00 by March, 2018. MYL is right on the edge with guidance of $5.15 to $5.55 for fiscal year (FY) 2017. Second quarter earnings before the market opens on Wednesday, August 9th will have to be good just to fight back the recent selling. The announcement will have to be downright fantastic to suggest the company might still hit the $6.00 EPS target. MYL must explain that the depths of TEVA’s woes are company specific. In other words, MYL could experience a post-earnings surge. With MYL Jan 2018 $35 call options costing a mere $1.70 or so, I find the risk/reward very attractive to start accumulating ahead of earnings. If MYL manages to disappoint post-earnings anyway, I will be looking to accumulate shares for holding into March, 2018…

Mylan (MYL) has suffered mightily thanks to Teva Pharmaceuticals and Morgan Stanley. Can the company redeem itself with this week’s earnings news?

Source for charts: FreeStockCharts.com

Be careful out there!

Full disclosure: no positions (yet)

AT40 = 53.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 51.1% of stocks are trading above their respective 200DMAs
VIX = 10.7 (down 11.5%)
Short-term Trading Call: neutral (see below for caveats)

Commentary
I had no idea that the previous tensions in the stock market fully priced in the likely economic damage from Hurricane Irma, the possible turmoil of budget ceiling battles in the U.S. political machinery, and/or the potential for another missile test from North Korea over the weekend. Yet, pundits seemed to use some combination of relief from these three catalysts to explain the market’s big rally on September 11th – a day on which Americans take pause to honor those lost 16 years ago to terrorism and to forget (briefly) our internal differences and strife.

The S&P 500 (SPY) gained 1.1% to a new all-time high. One more day of buying will force me to switch my trading call from neutral to cautiously bullish. I will only reluctantly make this change given the calendar is still in the seasonally weak period for the stock market. The NASDAQ gained 1.1% and the PowerShares QQQ Trust (QQQ) gained 1.2%. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), definitively confirmed the bullishness of the day by running all the way up from 44.9% to 53.0%.

The S&P 500 (SPY) made a statement by confirming 50DMA support and soaring to a new all-time high.

The PowerShares QQQ Trust (QQQ) rallied just short of a new all-time high as it fights to hold onto the uptrend through its upper-Bollinger Bands (BBs).

Like QQQ, the NASDAQ rallied just short of its all-time high.

The 30-Day Fed Fund Futures provided another clear example of the burst of euphoria that came out of the day’s trading. I checked the futures early in the morning about 5 hours before U.S. trading began and then again 10 hours after trading ended. Before trading began, the market fell just short of believing in a 50/50 chance of the timing for the NEXT rate hike from the U.S. Federal Reserve to come in June or August of 2018. After good tidings swept through the market, those odds surged such that the timing moved forward to March, 2018. The impact sent U.S. treasury yields higher, the U.S. dollar off its latest bottoming attempt, and precious metals down to the bottom of uptrend channels.

Futures traders marched the timing for the next Fed rate hike from June/August, 2018 to March, 2018.

Given my short-term bullishness on gold and silver I used this opportunity to load up on a new tranche of call options on the iShares Silver Trust (SLV) expiring in October.

The iShares Silver Trust (SLV) lost 1.5% and fell back to the bottom of its upward trending upper-Bollinger Band (BB) band.

Like SLV, the SPDR Gold Trust (GLD) lost 1.4% and closed at the bottom of its upward trending upper-BBs. Unlike SLV, GLD is in the middle of a major post-election breakout.

The day’s celebration also drove the volatility index, the VIX, right back to an extremely low level. When I last studied the data on periods of extremely low volatility, I concluded that September would be the time bullish implications for extremely low volatility finally came to an end. Instead, traders tamed volatility once again. For good measure, I took advantage of the lower prices to add another call option on ProShares Ultra VIX Short-Term Futures ETF (UVXY) as a hedge against bullishness.

The volatility index (the VIX) closed the day right back in extremely low territory.

I will need to revisit my study of periods of extremely low volatility and reassess the way I project out the potential end of the period. Specifically, I need to take better account of what happens when the VIX falls in and out of extremely low levels in rapid succession.

I am long overdue for an update on my trade on Mylan (MYL) and Teva Pharmaceuticals (TEVA) from a month ago. MYL swooned one more time after I posted on the trade. The recent bounce off the bottom brought my position into a marginal profit. I had more conviction on TEVA, but the stock kept selling off for the rest of August. Thinking I may have been overly aggressive in accumulating call options as the stock sank, I started buying shares that I planned to hold past the October expiration of the call options. Good news came in the form of a new CEO/President and promising results from a drug trial in Phase 3. TEVA at one point gapped over 22%; the stock ended the day with a 19.4% gain. I sold my shares and kept my call options (which almost got back to even!).

Mylan (MYL) may have finally bottomed but the stock faces a daunting task of breaking through looming overhead resistance.

Teva Pharmaceuticals (TEVA) gapped up strongly enough to give the impression that a bottom has finally arrived.

Some other quick trading updates…

• For those of you who caught my lamenting on IHS Markit (INFO) and bought on my stubborn refusal to let go of the investment, you are now sitting on a 10% or so gain. INFO made a very marginal new all-time high on the day.
• InterXion (INXN) has resumed a robust uptrend and left a trail of new all-time highs since its last breakout in mid-July.
• Surprisingly, the iShares U.S. Home Construction ETF (ITB) has traded right back to its high from 5 weeks ago. In my last Housing Market Review, I noted a change in tone that appeared to portend more selling pressure for home builders.
• Apple (AAPL) obliged this week’s round of call options with a jump of 1.8%. As promised, I promptly took my profits ahead of the company’s product announcements on the 12th.
• {Updated 9/12/17 after reviewing trade executions} NVIDIA (NVDA) popped a healthy 3.2% and once again confirmed 50DMA support. I took profits on the call option I bought Friday.
• Blue Apron (APRN) is still roughly flat from my speculative purchase a month ago. The good news is that the stock looks like it is forming a solid base. The Bollinger Bands (BB) are tightening and tilting ever so subtly toward an upside breakout. A new low invalidates this trade.

Sellers finally look exhausted out of Blue Apron (APRN). A base for a potential upside breakout is slowly developing.

Tesla Motors (TSLA) provided yet one more sign of the good times for the market…and ended the chances that my put options bought as a hedge will close in the green. TSLA soared a very convincing 5.9% with a move that definitively confirmed 50DMA support.

Tesla Motors (TSLA) used its 50DMA as a springboard to a 5.9% gain on the day.

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #392 over 20%, Day #206 over 30%, Day #6 over 40% (overperiod), Day #23 under 50% (underperiod), Day #29 under 60%, Day #152 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long SLV shares and calls, long GLD, long TSLA puts, long UVXY calls, long TEVA calls, long MYL calls

*Charting notes: FreeStockCharts.com uses midnight U.S. Eastern time as the close for currencies. Stock prices are not adjusted for dividends.

President Trump will address a joint session of Congress on Tuesday night, February 28th. Traders will no doubt have notepads ready to jot down the latest corporate targets of Trump’s wrath and praise. Trump’s words and tweets move markets, yet recent impacts have not lasted and have even worked in reverse of expectations. It is time to think of Trump Trades more as short-term generators of volatility. Nimble traders can continue chasing the immediate reaction for however long it lasts. More circumspect traders can treat the volatility as a way to buy/sell into the pre-Trump trade at a better price; in other words, give consideration to the contrary case. In preparation for the potential trade-worthy aftermath of Trump’s address, I examine lessons from four recent Trump Volatility scenarios: Nordstrom (JWN), Intel (INTC), Cognizant Technology (CTSH), and the iShares Nasdaq Biotechnology (IBB).

Nordstrom (JWN)
On February 8th, Trump complained about Nordstrom dropping his daughter Ivanaka’s line of products from its stores. The market started to sell JWN shares, but, abruptly, buyers returned fire in force. By the end of the day, JWN was UP a startling 4.1%. JWN gained the next day as well. JWN churned from there but never returned to the price it had when Trump tweeted.

Nordstrom (JWN) survived Trump’s wrath by gaining in value. The reaction to earnings pushed JWN to a marginal 7-week high and a critical test of resistance at its 50-day moving average (DMA).

Source: FreeStockCharts.com

The day after Trump’s tweet, Trump counselor Kellyanne Conway underlined her boss’s outrage by encouraging viewers of “Fox & Friends” to go out and buy Ivanka’s products. JWN gained another 2.3% in the wake of that news.

Apparently, JWN’s decision had nothing to do with politics and everything to do with business. According to Yahoo Finance:

“Beyond people not wanting to purchase Trump-branded clothing, the core problem is actually entirely unrelated to politics. The real culprit is the dominance of athleisure, making Ivanka Trump’s structured dresses and pumps seem out of sync with how people dress these days — more casually, even to work.”

That assessment helps explain the lack of selling pressure. Perhaps the buying interest was out of relief that JWN was further rationalizing its product lines. To highlight the minor nature of this incident, JWN never referenced it until analyst Omar Saad from Evercore ISI pressed the issue. Peter Nordstrom responded. Here is the brief exchange from the Seeking Alpha transcript of the earnings call:

“…And I’m sorry I have to ask, did you see any change in trend in your business at all around the President’s tweets, whether it’s helped you or hurt you at all? Is there something you can comment on?”

“This is Pete. No, that would be negligible. I think it’s not really discernible one way or the other.”

Going forward, I think the Trump-effect is a non-issue for JWN except that it seems the immediate response may have washed out a sizable portion of motivated sellers (note that a whopping 21% of JWN’s float is already sold short). The reaction to the earnings report looms much larger now with the stock pressing against resistance at its 50-day moving average (DMA) and 200DMA resistance looming overhead. Note that the 13.0M shares traded were not as high as the trading volume from earnings last August.

Intel (INTC)
On February 8th, Intel CEO Brian Krzanich visited the White House to announce plans to invest in an Arizona factory. From Intel’s press release accompanying the visit:

“Intel Corporation today announced plans to invest more than $7 billion to complete Fab 42, which is expected to be the most advanced semiconductor factory in the world. The high-volume factory is in Chandler, Ariz., and is targeted to use the 7 nanometer (nm) manufacturing process. It will produce microprocessors to power data centers and hundreds of millions of smart and connected devices worldwide…

The completion of Fab 42 in 3 to 4 years will directly create approximately 3,000 high-tech, high-wage Intel jobs for process engineers, equipment technicians, and facilities-support engineers and technicians who will work at the site. Combined with the indirect impact on businesses that will help support the factory’s operations, Fab 42 is expected to create more than 10,000 total long-term jobs in Arizona.”

While the factory has been on the books for several years, Krzanich explained that Trump’s plans for corporate tax cuts and regulatory reform convinced the company to finally move forward with its plans. The market’s reaction to the visit with Trump was very mixed. On the day, the stock pivoted high and low around its 50DMA. The next day, INTC broke down in response to its analyst day. The selling ended the next day with a near picture-perfect test of support at its 200DMA.

I am not clear whether INTC’s job creation offset the U.S. portion of the 12,000 people that Intel announced it would layoff globally (11% of its workforce at that time). Intel broke the news last April as a part of its earnings announcement at the time. The stock is up 15.6% since then even with the recent pullback.

Intel (INTC) has knocked on 50DMA resistance 4 out of the last 6 trading days. A solid close on Friday suggests a breakthrough is imminent.

Source: FreeStockCharts.com

For INTC, Trump praise had little to no immediate impact on the stock besides intraday churn and volatility. The more important news came the next day with the stock moving in the opposite direction of the praise. INTC was another case where it was more important to think of trading around Trump Volatility rather than to look for a sustained reaction in support of the headline. Note that given my bullishness on INTC in between earnings, I used the selling to double-down on my between-earnings-trade.

Cognizant Technology (CTSH)
On January 29th, Bloomberg reported that Trump was drafting an executive order to strike at the H-1B VISA program. Indian information technology firms use this program to fly in workers for projects. The market reaction gapped Cognizant Technology (CTSH) down to a 4.4% loss. At the time, I noted the bearish technical implications of the selling. The selling came to a quick halt as traders awaited earnings. Once again, earnings news dominated the Trump headlines as CTSH soared right through 50 and 200DMA resistance. The following day, CTSH broke through its recent downtrend. The stock has crept higher ever since and looks poised for more with CTSH initiating “a robust capital return program” featuring dividends and a cash buyback.

Cognizant Technology (CTSH) quickly flipped from bearish to bullish from Trump to earnings.

Source: FreeStockCharts.com

It turns out Indian IT companies have been bracing for visa reform for ten years. They claim that they have been adjusting their business model to rely less on the H-1B visa. Still, various Indian IT firms quickly rallied to plan some lobbying to stave off damaging regulations. This episode surely brought back nightmares from the severe restrictions in the Immigration Reform bill that was proposed back in 2013.

If I had known about the industry’s preparation over the H-1B visa issue, I would have pounced on the selling as a potential pre-earnings buying opportunity… especially with this new Trump Volatility trading framework.

In its earnings announcement, CTSH addressed the issue head-on noting how it is already expanding local workforces. From the Seeking Alpha transcript of the earnings:

“We will also continue to invest extensively in training and re-skilling our team and in substantially expanding our local workforces in the U.S. and other local markets around the world where we operate, as agile development and the pervasive influence of technology increases the value of co-location and a consultative approach. To complement this organic investment, we are intensifying our efforts to acquire companies, expanding our intellectual property, industry expertise, geographic reach, and platform and technology capabilities. We’ve recently ramped up this activity and we expect to accelerate the pace further in 2017, while keeping to our strategy of focusing primarily on tuck-in acquisitions.

…we’ve been expanding our local hiring and retraining and so forth in various geographies around the world, but assumes essentially that we continue on that path with no significant changes in terms of immigration policy or so forth.”

CTSH noted that trying to anticipate relevant changes to U.S. immigration policy is too speculative an exercise right now for planning.

Needless to say, I will be buying the dips in CTSH going forward.

The iShares Nasdaq Biotechnology (IBB)
Across the political spectrum politicians have recently bashed the pharmaceutical industry. The words of three politicians have carried enough market weight to pressure IBB downward. Former Democratic Presidential candidate and Secretary of State Hillary Clinton kicked things off on the campaign trail for the Democratic primary in September, 2015 when she announced a coming plan to address price gouging on drugs. To my surprise, IBB has yet to recover from that bash. In fact, IBB has yet to even sustain a recovery from the second Clinton bash which came last August. Trump’s victory wiped out a bash from Senator and former Democratic Presidential contender Bernie Sanders. Two subsequent bashes from Trump looking for ways to lower drug prices first marked a post-election bottom and then second created a 3-week sell-off that was fully reversed by mid-February.

The iShares Nasdaq Biotechnology (IBB) has taken a lot of beatings for the past 17 months, yet a double-bottom has held since last summer.

Source: FreeStockCharts.com

At this point, IBB has survived a lot of negative headlines, political bashing, and selling. The chart above shows that IBB carved out a double bottom between February and June, 2016 that survived a test last November. I now assume that a sustainable bottom has finally arrived for IBB and future dips driven by political wrangling are likely buying opportunities. At least it should take more than words to keep IBB down going forward. If IBB breaks out to the upside from the current range… look out.

Parting Thoughts
These four cases represent a portion of the various Trump trades that have pervaded the stock market. I picked these stocks out as examples of how the Trump trade can work out in reverse of the initial or headline expectations. With many of the big programs becoming old news on Wall Street, the market should growing increasingly impatient to get specifics and legislation underway. Under these circumstances, I think short-term Trump Volatility will characterize the market’s reactions instead of the more sustained advance in the weeks following the November election.

Be careful out there!

Full disclosure: long INTC call options

AT40 = 43.3% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 60.5% of stocks are trading above their respective 200DMAs
VIX = 11.9 (volatility index)
Short-term Trading Call: neutral

Commentary
Times like these really put AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), to test.

The stock market’s underpinnings continued their slides on Wednesday with AT40 dropping to a level last seen the day after the U.S. Presidential election. AT200 (T2107), the percentage of stocks are trading above their respective 200DMAs, dropped in unison and confirmed the end of its uptrend. Bullish momentum has come to an end.

AT40 (T2108) traded below 50% for the first time since the day after the U.S. Presidential election.

AT200 (T2107) plunged to a new three-month low and confirmed the end of its post-election uptrend.

A trader may never guess at the weakening foundations while watching the S&P 500 (SPY) drip ever so slowly downward. The hardy index STILL did not close below the low of the day before its last bullish breakout – a threshold I have held out as the dividing line between a neutral and a bearish stance on the market.

The S&P 500 (SPY) fell a mere 0.2% and once again stopped short of triggering a bearish trading call.

The volatility index, the VIX, once again showed little interest in flagging trouble ahead.

The volatility index, the VIX, still shows little concern as it gained just 3.6% on the day. However, a bottom may be forming?

With this conflicting setup creating what looks like a “quiet” breakdown a week before the Fed meets, I decided to look at some other technical indicators related to AT40: T2114 and T2116. These indicators measure the percentage of stocks that are a certain distance below their 40DMAs. The bigger the number, the worse off the stock market is. T2114 measures the distance by one channel – think of it as a Bollinger Band channel or approximately one standard deviation. T2116 is two standard deviations. The charts below suggest there is increasing stress under the hood of an otherwise serene market. A quiet breakdown is indeed underway. The upshot is that a fresh BUYING opportunity will likely accompany these indices on a retest of former highs. In other words, whatever extended sell-off awaits around the corner will likely be shallow and brief (don’t blink?).

T2114, the percentage of stocks trading “one standard deviation” below their respective 40DMAs, returned to pre-elections levels and confirmed increasing stress among stocks.

Like T2114, T2116, the percentage of stocks trading TWO “standard deviations” below their respective 40DMAs, fell to pre-election levels and confirmed growing stress under the relative calm of the market.

The new high / new low ratio (T2117) also helps display the sudden change in market momentum. New highs went from close to 100% of the total of stocks making new 52-week highs and new 52-week lows on March 1st (93.5%) to just 32.7% one week later.

The New High / New Low ratio (T2117) has taken a sudden and abrupt turn for the worse: its lowest point yet since the aftermath of November’s presidential election.

A large drop in oil prices drove a good portion of the incremental stress and breakdowns. From Barron’s (“Oil (GASP) Plummets”):

“The U.S. Energy Information Administration reported that domestic crude supplies for last week came in 8.2 million barrels higher. That means total commercial inventories hit a weekly record level of 528.4 million — its ninth consecutive climb.

The EIA also raised its forecast on crude production for this year and next. This year crude production will average at 9.21 million barrels a day, up from the previous 8.98 million forecast. In 2018, output is expected to hit 9.73 million barrels, up slightly from the 9.53 million call.”

The big surprise inventory build took out the oil complex in profound ways. The Energy Select Sector SPDR ETF (XLE) sliced right through critical support.

The Energy Select Sector SPDR ETF (XLE) sliced through 200DMA support with a 2.6% loss.

When I pointed out the breakdown in VanEck Vectors Russia ETF (RSX) and made a play on the Direxion Daily Russia Bear 3X ETF (RUSS), I vaguely assumed something Russia-specific was brewing even as other emerging markets were hurting. Now it looks like traders were trying to get ahead of the oil plunge?

The VanEck Vectors Russia ETF (RSX) dropped 2.5% as selling extended the 50DMA breakdown

Stocks across the commodity complex continued to suffer. My play on Freeport McMoran (FCX) looks certain to fail now that FCX has punctured 50DMA support.

Freeport McMoran (FCX) broke down below 200DMA support as it continued to tumble through its downward trending lower-Bollinger Band (BB) channel.

A resurgent U.S. dollar index (DXY0) likely added to the weight on the commodities complex. The dollar finished a complete recovery from last week’s selling that accompanied Janet Yellen’s speech last week. An extremely positive number from the ADP employment report pushed rate expectations ever higher.

The U.S. dollar (DXY0) finished recovering its loss from last week’s “sell the news” reaction to Fed Chair Janet Yellen’s speech which affirmed the coming of a March rate hike.

The U.S. dollar punched the Australian dollar, an important commodity currency, through 200DMA support.

Gold and silver could not withstand the pressure. Both SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) cracked through critical support at their respective 50DMAs.

The SPDR Gold Shares (GLD) gapped down and broke down below 50DMA support for a 0.6% loss.

The iShares Silver Trust (SLV) accompanied GLD in breaking 50DMA support.

So it looks like I got a bit too cute in closing out my gold versus bonds pairs trade and applying the profits on the put options on the iShares 20+ Year Treasury Bond (TLT) to more GLD call options. Per plan, I did rush back into TLT put options as gold’s weakness continued. I flipped those for a small profit on TLT’s gap down. Extremely bullish silver speculators are likely mightily hurting now.

The iShares 20+ Year Treasury Bond (TLT) gapped down to the bottom of its recent trading range. Buyers stepped in from there.

The breakdown theme played out with small caps as well. The iShares Russell 2000 (IWM) gave up its 50DMA support and put in play its 2017 low.

The iShares Russell 2000 (IWM) broke down below 50DMA support and put 2017 lows into play.

Last week I pointed out how Tesla (TSLA) just missed confirming a bullish bounce off 50DMA support. Today, TSLA returned to a bearish setup by following the day’s breakdown theme…

Tesla (TSLA) closed below 50DMA support for the first time since last December.

There were a few brights spots of note.

The iShares Nasdaq Biotechnology (IBB) proved out my observation that President Trump’s market moving power has transitioned to one of causing volatility that the market reverses relatively quickly. On Tuesday, President Trump once again talked lower drug prices for Americans, and once again IBB reacted by selling off. THIS time, IBB bounced right back the next day. I bought a call option on the pullback form the high of the day.

The iShares Nasdaq Biotechnology (IBB) rebounded immediately from Trump’s latest bash.

Financials actually gapped up to start the day. The subsequent selling closed out the Financial Select Sector SPDR ETF (XLF) with no gain.

Financials helped prevent a larger market decline by closing flatline. The Financial Select Sector SPDR ETF (XLF) even gapped up before succumbing to sellers.

Even Snap Inc. (SNAP) provided a bright spot. SNAP followed-through on my bullish reversal on the shares. Once again, the 5-minute chart shows the dynamism in the SNAP trade. This granularity has helped me spot key pivot points. Notice how SNAP reversed the opening gap up before powering higher. That is bullish follow-through on an attempt to carve out some kind of bottom.

Snap Inc. (SNAP) gained 6.4% on the day after a wobbly open and failing to hold its intraday high.

Even homebuilders had a good day, presumably on the strong jobs outlook.

The iShares US Home Construction (ITB) gained 1.3% in a rare demonstration of relative strength. ITB now trades at a new 9+ year high.

Overall, it looks like next week’s meeting of the U.S. Federal Reserve will produce an imortant and telling pivot point for the market. Start bracing now as the coming week could be a race against all the “quiet” breakdowns in the stock market.

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #264 over 20%, Day #84 over 30%, Day #83 over 40% (overperiod), Day #2 under 50% (underperiod), Day #5 under 60%, Day #30 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long UVXY call options, long SNAP, long and short U.S. dollar currency pairs, long RUSS, long FCX call options, long GLD shares and call options, long SLV

AT40 = 68.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 65.4% of stocks are trading above their respective 200DMAs
VIX = 10.9 (volatility index)
Short-term Trading Call: bullish

Commentary
AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), pushed into overbought territory today with an intraday high of 72.7%. AT40 pivoted around the 70% threshold over and over before closing the day in retreat. The close of 68.1% leaves my favorite technical indicator tantalizingly close to a status it last obtained 70 trading days ago on January 25, 2017 (for one precious day).

The S&P 500 (SPY) fell just short of 2,400 before fading to a flat close. If buyers do not step back in quickly, the index will risk a full retreat to 50DMA support (where I will happily reload on S&P 500 longs).

The S&P 500 (SPY) quickly went from spry to exhausted. Support at the 50DMA may be in play already.

I strongly prefer some venting of steam here because hitting overbought status with the S&P 500 stretched above its upper-Bollinger Band (BB) would force me to temper my bullishness. A pullback to or close to 50DMA support would allow some room for AT40 to cross 70% without the S&P 500 in an over-stretched state.

The volatility index, the VIX, did not benefit much from the day’s reversal (which presumably was the market’s way of welcoming the announcement of President Trump’s tax plan – sell the news and/or acknowledgement of the rough road ahead).

The volatility index remains at a near 3-year low.

In my last Above the 40 post, I neglected to point out the big move to all-time highs by Netflix (NFLX). Last week, I shorted NFLX based on what looked like a confirmed 50DMA breakdown. The stock promptly turned around and closed above its 50DMA on Monday….where I was supposed to hit a stop loss. I forgot to set up that trade, and on Tuesday I paid dearly. The main saving grace is that I had a very small position. This was a good lesson and reminder on maintaining discipline around stop loss points. (I will now bail on a new all-time high).

Netflix (NFLX) recovered its post-earnings loss with a fresh surge and breakout.

I also forgot to note that I sold and locked in profits on my call options on CurrencyShares Euro ETF (FXE). FXE printed a fantastic breakout above 200DMA resistance thanks to the French Fly. However, with FXE trading well above its upper-Bollinger Band (BB) I was compelled to sell (this is one of my regular sell rules to avoid getting caught up in an over-stretched move). Today, FXE gapped down below 200DMA support, gave back all of Tuesday’s gains, and then rallied back. I prefer this kind of volatility for the forex trading.

The CurrencyShares Euro ETF (FXE) made a bullish 200DMA breakout, but it now needs to confirm the move especially after today’s gap down.

EUR/USD is more clearly bullish with a 200DMA breakout immediately following the French Fly and trading at a 5-month high.

There have been some very dramatic post-earnings implosions this week that I am tracking. Express Scripts (ESRX) fell over 10% following an earnings report which included the bad news that Anthem (ANTM) will not renew its contract with ESRX. The stock made an impressive bounceback to its lower-BB, but I am looking for an entry to short. ESRX has struggled since a huge swoon in early 2016.

Express Scripts (ESRX) confirmed its weakness with a fresh round of bad news.

U.S. Steel (X) shocked investors with a major downward revision of forward guidance due to substantial investments the steel company needs to make. It seems X was a classic case of too much focus on the boost from government boosterism (through trade policies) and too little focus on the way X was boosting its results by avoiding re-investment in its business (see Seeking Alpha summary). I now wonder whether investors have become overly short-sighted in one fell-swoop. I am targeting a buy on a new post-earnings high. Perhaps I will do a hedged trade after volatility settles down a little more in a few more days.

Add U.S. Steel (X) to the list of trades that have reversed all its post-election move. The post-earnings gap down pushed X back into its post-election gap up.

While I was editing this piece, the Trump Administration made a major announcement on NAFTA:

“President Donald Trump on Wednesday told the leaders of Mexico and Canada that he will not immediately pull out of the North American Free Trade Agreement, just hours after administration officials said he was considering a draft executive order to do just that…

‘President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” said the White House.'”

I found the news after wondering why the Canadian dollar was strengthening so rapidly. I decided to fade the move after seeing the news…

So far, so good.

USD/CAD was at a 14-month high when the NAFTA news dropped. I like accumulating a position as long as the currency pair trades within the uptrending upper-Bollinger Bands. Note how USD/CAD twice struggled to remain above its upper-BB.

I am reminded that speculators recently flipped to net short the Canadian dollar (FXC). So I suspect that the rapid plunge on the NAFTA news was simply a quick trigger reaction by shorts rushing to cover.

Speculators have not been this negative on the Canadian dollar (FXC) since early 2016.

Source: Oanda’s CFTC’s Commitments of Traders

Ever since speculators flipped the script on their bullishness on the Canadian dollar, I have been looking for a spot to get aggressively short against the Canadian dollar. I think this might be the moment, but my new position is relatively small in preparation for potential accumulation closer to the bottom of the upward trend channels on both GBP/CAD and USD/CAD.

Be careful out there!

— – —

“Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs.

Active AT40 (T2108) periods: Day #298 over 20%, Day #118 over 30%, Day #8 over 40%, Day #5 over 50%, Day #3 over 60% (overperiod), Day #70 under 70%

Daily AT40 (T2108)

Black line: AT40 (T2108) (% measured on the right)
Red line: Overbought threshold (70%); Blue line: Oversold threshold (20%)

Weekly AT40 (T2108)

*All charts created using freestockcharts.com unless otherwise stated

The charts above are my LATEST updates independent of the date of this given AT40 post. For my latest AT40 post click here.

Related links:
The T2108 Resource Page
You can follow real-time T2108 commentary on twitter using the #T2108 or #AT40 hashtags. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag.

Be careful out there!

Full disclosure: long call and put options on UVXY, short NFLX, short the Canadian dollar

*Note QQQ is used as a proxy for a NASDAQ-related ETF