Health Care Archives - ONE-TWENTY TWO: Trading Financial Markets

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!

— – —

FOLLOW Dr. Duru’s commentary on financial markets via email, StockTwits, Twitter, and even Instagram!

“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!

— – —

FOLLOW Dr. Duru’s commentary on financial markets via email, StockTwits, Twitter, and even Instagram!

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.

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!

— – —

FOLLOW Dr. Duru’s commentary on financial markets via email, StockTwits, Twitter, and even Instagram!

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.

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.

AT40 = 60.4% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 53.2% of stocks are trading above their respective 200DMAs
VIX = 10.2
Short-term Trading Call: cautiously bullish

Commentary
North Korea launched another ballistic missile over Japan, this one with enough range to hit Guam. The general market response was a collective yawn. In an earlier post I claimed that further militaristic actions from North Korea were not likely to spook markets until/unless the U.S. (or some country) actually responded. That assessment rang true in this latest incident.

The S&P 500 (SPY) hit a fresh all-time high. On Monday of last week the index made a new all-time high and met my criteria for flipping the short-term trading call from neutral to cautiously bullish. On Tuesday, the S&P 500 confirmed the change in trading call with a higher close.

The S&P 500 (SPY) looks set up for more gains as it reaches higher into its upward trending Bollinger Band (BB) channel.

The NASDAQ and PowerShares QQQ ETF (QQQ) faded from their respective highs and just missed joining the S&P 500 in the all-time party.

The PowerShares QQQ ETF (QQQ) faded off a new all-time high back into the month’s trading range.

AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), is still confirming the bullish mood. AT40 closed the week at 60.4%, its highest close since July 27th. A fresh visit to the overbought threshold (70%) appears imminent. Unlike past approaches in recent times, this run has a very bullish implications. A close into overbought territory will likely mark the beginning of a strong, overbought rally. This seasonally weak period for stocks continues to surprise!

The volatility index, the VIX, is a full participant in the surprise. I have been targeting September as the month when the period of extremely low volatility came to a definitive end. Instead, the VIX finds itself plunging right back to extremely low levels (below 11). Sure the past month has featured at least 4 separate VIX spikes (depending on how you want to count), but the current drop to 10.2 serves as a reminder that nothing has happened to create any sustained level of concern in the market.

The volatility index (the VIX) finds itself right back at extremely low levels after multiple rejections from higher levels including twice from the 15.35 pivot.

The financials have yet to confirm the bullish sentiment in the market. The Financial Select Sector SPDR ETF (XLF) has struggled mightily since the bullish breakout in late June/early July. An extension rally in August stopped short of confirming the bullish break from the previous head and shoulders pattern. XLF sold off from there right back to the February breakout point. Like clockwork, traders bought the test of support and now XLF is struggling to break through 50DMA resistance. I have not made a trade on XLF in a while, but I have put it back on the radar.

The Financial Select Sector SPDR ETF (XLF) has effectively spent most of 2017 churning around.

Apple (AAPL) has effectively churned since its bullish post-earnings breakout in early August. Yet, the rhythm has been good enough to deliver gains on the weekly call option trade. In the previous week, sellers delivered as expected by taking AAPL down after its product announcements. I started into my weekly call purchase on Thursday, but took profits on Friday’s pop. I recognize that there are times the market will attempt to get ahead of the typical Monday pop in AAPL.

Taking a step back, I recognize that AAPL has essentially churned above its former all-time high. I daresay a test of converged support from the uptrending 50DMA and the former all-time high is imminent.

Retailers have been sneaking back. I suppose traders and investors are sniffing around for bargains in a market rally that “feels” very mature. For example, I have been carefully watching the auto parts retailers for a new opportunity to make a buy. The small positives seem to be building. O’reilly Automotive (ORLY) initiated a buyback after its last earnings. Last week, ORLY neatly bounced off 50DMA support. Autozone (AZO) broke through 50DMA resistance this month and continued to rally to a higher high. Combine that move with a higher low in August and a complete reversal of the loss in sympathy with ORLY, and AZO looks like it is bottoming. If AZO produces positive earnings before the market open on September 19th, I become a buyer.

O’Reilly Automotive, Inc. (ORLY) is on the verge of confirming a bullish test of 50DMA support.

Autozone (AZO) is forming a bottoming pattern with a higher low and higher high that includes a 50DMA breakout.

Best Buy (BBY) is making a valiant comeback from a huge post-earnings breakdown. BBY reversed its entire incremental post-earnings loss with a 50DMA breakout. This is a great spot for a hedged play as the stock is poised for a major setback or the continuation of a gap fill play. I own calls and puts.

Best Buy (BBY) buyers have returned in force. Do they have enough gas to continue into a gap fill play?

The saga with Chipotle Mexican Grill (CMG) continues apace. A downgrade caused a huge gap down on CMG on September 8th, but buyers stepped in to keep CMG from setting a lower low. At one point last week, the gap even filled. These are the VERY faint signs of the start of a bottoming process for CMG. When I make a short-term trade on CMG, I am sticking with the long side. I am not yet ready to make another try on investing in a bottom.

Chipotle Mexican Grill (CMG) is fighting to overcome two damaging downgrades.

First Solar (FSLR) is exceeding my most optimistic expectations. I long ago covered my short put for a profit. Now I wish I had loaded up on shares. An upgrade on Friday generated a breakout above recent congestion which confirmed a successful test of 50DMA support.

Another bullish breakout for First Solar (FSLR)

A much more speculative, but near similar breakout, comes from Zynga (ZNGA). Remember them? While I focused on improving my Words with Friends skills, ZNGA quietly rallied from near-death below the $2 barrier in early 2016. Now, ZNGA sits at 40-month highs and a bullish breakout from an extended trading range. I like buying right here with a potential stop below the trading range with risk down to a test of uptrending 200DMA support. Given this is a speculative play, it makes sense to keep the trading size small and widen the window for trading.

Zynga (ZNGA) made a classically bullish breakout with high volume above a tight and extended consolidation range.

U.S. Concrete (USCR) continues to intrigue. I have written several articles on USCR already. Here, I just want to point out that on Friday, USCR printed a picture-perfect bounce from 200DMA support. I tried to double down on my position here, but my limit order failed to trigger.

U.S. Concrete (USCR) stemmed the recent loss with a picture-perfect bounce from 200DMA support on strong volume.

I end this tour of notable stock charts with the iShares Nasdaq Biotechnology ETF (IBB). IBB bounced strongly off the last low but met stiff resistance at an important milestone: the Clinton bash. When I wrote about the Clinton bash two years ago, I staked a claim on an eventual recovery. However, I did not have a two-year horizon for that recovery! Buyers are struggling to complete the recovery as IBB has failed all month to get through resistance. Now, IBB is very vulnerable to a fresh bash from somewhere in the U.S. political apparatus. Stay tuned!

This 3-day chart provides a view into the origin of September’s month-long resistance for the iShares Nasdaq Biotechnology ETF (IBB).

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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.

Be careful out there!

Full disclosure: long USCR calls, long UVXY call options

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

(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.

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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

AT40 = 63.6% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 54.9% of stocks are trading above their respective 200DMAs
VIX = 9.6
Short-term Trading Call: cautiously bullish

Commentary
The stock market stubbornly held onto its bullish positioning despite the tumble of one of its biggest stalwarts: Apple (AAPL).

AAPL fell 5.0% for the week. In the process the stock printed a bearish breakdown below support at its 50-day moving average (DMA) and completely reversed the bullish breakout from the August earnings gap up. The resulting pattern looks like a top. Buyers finally delivered a reprieve of sorts on Friday after AAPL plunged well below its lower-Bollinger Band and created a short-term oversold condition. The bounce from the lows created a hammer that needs follow-up buying for confirmation.

Sellers reactivated ever since Apple (AAPL) made its latest product announcements. The current breakdown looks like a topping pattern.

I cut AAPL some slack and stuck to the current trading strategy of having call options in play on a weekly basis. Needless to say, I had to watch one tranche of calls expire worthless last week. My second tranche timed for the coming week was laid to waste. My third tranche, my last until AAPL’s bullish flair returns, should be well positioned as I bought it when AAPL flirted with $150 in deeply oversold territory. If not for the weekly call trading strategy, I would have flagged AAPL as a potential short with the 50DMA breakdown last Wednesday. Moreover, AAPL’s product rollout is in a strange and complicated place with the coming introduction of the iPhone 8 which will be followed in another month by the more powerful iPhone X.

The rest of the market is doing its best to ignore AAPL’s latest travails. While the S&P 500 (SPY) ended the week around where it started, the index made more all-time highs in between. The upper-Bollinger Bands (BBs) are clinging to their bid to guide the index ever higher.

The S&P 500 (SPY) is in a bullish position with the 20, 50, and 200DMAs all trending upward.

AAPL made its presence felt in the tech-laden NASDAQ and the PowerShares QQQ ETF (QQQ). On Friday, the NASDAQ managed to bounce off uptrending 20DMA support. AAPL’s impact was much greater on QQQ which barely escaped with a bounce off uptrending 50DMA support.

The NASDAQ retested 20DMA support as Apple (AAPL) weighed on the index.

Apple (AAPL) weighed heavily on the PowerShares QQQ ETF (QQQ) this week as the index was forced into a 50DMA retest.

The volatility index is doing its best to make new history. Starting September 11th, the VIX closed with a loss all but one day. The march is in inches, but the VIX is now within sight of a 24-year low and perhaps an all-time closing low. This bullish behavior is all the more remarkable considering the continuing heating of wartime rhetoric between North Korea and the U.S. That rhetoric, and the season of the calendar, keep me rotating into call options on ProShares Ultra VIX Short-Term Futures (UVXY).

The volatility index (VIX) has begun another drive to make history.

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, held steady for the week in the low to mid-60s. So with one eye on current conditions I keep the short-term trading call on cautiously bullish. With another eye looking around broadly, I see plenty of reason to BE cautious. My trades last week reflected this mix.

Tesla (TSLA)
TSLA was hit by an analyst downgrade last week and sellers stepped right in. After it looked like the selling would come to a quick end at the bottom of the upper-BB channel, I bought a call option in anticipation of a rapid bounce. For a brief moment the next day the trade looked smart. When sellers took TSLA below the channel, I quickly reached for a put option to hedge my position. TSLA closed an ugly week with a 4.2% loss on Friday. I took profits on the put to pay for the call option but left some good money on the table.

Tesla (TSLA) found resistance at its all-time high from June and tumbled right back to a test of 50DMA support.

Chipotle Mexican Grill (CMG)
CMG started the week with a nasty tumble. I pounced on the decline as a fresh buying opportunity. Yet, when CMG cracked the previous low I reached for put options in preparation for what then looked like a bigger sell-off. Buyers soon rushed in and turned the day into a bullish looking like “hammer.” I can only imagine that sellers took out stops at the previous lows and/or the $300 level. The subsequent rebound signals once again that sellers are exhausting themselves. It is just too bad I did not stick to my bullish bottoming thesis: I should have waited for confirmation of selling pressure before buying the put options. On Friday I salvaged some of the value of the call option and watched the put options get laid to rest – just another one of those lessons learned. The difference here from the TSLA trade is that I do not have a standing bullish thesis on TSLA.

Chipotle Mexican Grill (CMG) printed a hammer after ever so briefly piercing the major low from August. With the 20DMA turning upward, it seems sellers may finally have exhausted themselves.

Autozone (AZO) and O’Reilly Automotive (ORLY)
The initial response to Autozone’s earnings was bullish as buyers stepped in right at the open. Hoping to participate in the confirmation of my bullish call on AZO, I placed a low ball offer for a call option hoping the order might fill as post-earnings implied volatility imploded. Instead, the stock quickly reversed, and my bid was met as sellers in the stock rushed for the exits. The proximate cause was a series of dour comments from the CEO in his introductory remarks during the conference call. Here is a sample from the Seeking Alpa transcript:

“There are certain factors present today some macro and others that relate to actions we have taken as part of our long-term strategy that have created challenges to us delivering the same level of profitability growth that we have been delivering.

We intentionally made the decision to invest in our business at an accelerated rate in inventory, capital expenditures and operating expenses. Unfortunately, as we increased our investment profile, our sales have been slower than we would have thought due to poor performance in several of our weather-sensitive categories and our multiple frequency of delivery initiative did not generate the benefits yet that we expected.

Additionally, as our commercial program openings have slowed, our overall commercial sales growth has declined as well. Simultaneously, we faced several other pressure points. Over the last year, we’ve experienced accelerated pressure on wages significantly more than I have experienced in my nearly 23 years of Autozone. Some of this is attributable to regulatory changes in certain states and municipalities, while the balance and probably the larger portion is being driven by general market pressures with lower unemployment and some specific actions taken in recent years by other retailers.

The regulatory changes are going to continue as evidenced by the areas that have passed legislation to increase their wages substantially over the next few years. Additionally, we are experiencing increased levels of shrink in our interest expense after years of lower rates is beginning to increase.

The collective combination of these factors have significantly hampered our earnings per share growth.”

ORLY first soared and then sold off in sympathy with AZO. I thought the selling was just the buying opportunity I was looking for and I snatched some call options. In the heat of the moment, I neglected to adjust (or cancel) my order on AZO. That order filled to my initial chagrin. The next day, buyers swiftly returned to AZO, and I quickly took some nice profits (sometimes it is better to be lucky than good). Per the chart below, I clearly should have held on! I am at least still holding my now profitable call options on ORLY.

Autozone (AZO) gets redemption. Buyers rushed in so quickly for the bargain that the entire post-earnings loss is now erased and then some!

O’reilly Automotive (ORLY) found firm support at its uptrending 20DMA but has not quite erased the entire post-AZO loss.

First Solar (FSLR)
I pointed out the bullish breakout in FSLR in my last Above the 40 post. Much to my delight, I got a chance to (re)participate in the stock’s run-up when it proceeded to reverse the breakout and test 50DMA support. On Friday, fresh news about solar tariffs reignited the stock for a gain that almost reached 7% at one point. Given tariff-related moves can be oh so capricious, I decided to take my profits.

First Solar (FSLR) found firm support at its uptrending 50DMA and closed the week at a fresh 16-month high.

Intercept Pharmaceuticals (ICPT)
I have not written about ICPT for a long time (click here to see related references). Suffice to say that I am little surprised that the stock finally completed a reversal of 2014’s remarkable run-up: in two days ICPT soared from $72.39 to $275.87 and to $445.83. The stock has not closed higher since.

The beginning and the end of the good ol’ days for Intercept Pharmaceuticals (ICPT).

I was slow on the uptake when ICPT experienced a post-earnings breakdown below its 50 and 200DMAs following July earnings. That breakdown received confirmation when ICPT met stiff resistance at its converged 50/200DMAs earlier this month. The confirmation of a bearish turn of events came on the big gap down the very next day. I was STILL slow to move when ICPT sold off anew on Thursday after the FDA issued a warning letter. I FINALLY made a trade on Friday in the middle of fresh selling. My lateness forced me to combine a small short on the stock with a call option to cover any upside surprises. ICPT is obviously trading well below its lower-BB and subject to a sharp relief rally. In such a case, I will likely add to my small short position. I learned a fresh lesson in following the scent of the technicals…

A stomach churning collapse for Intercept Pharmaceuticals (ICPT).

U.S. Steel (X)
I have followed U.S. Steel all the way up its recovery from the May lows. In early June, I wrote about the bullish second half thesis on steel stocks like X. Buying the dips and selling the rallies worked until last week. U.S. Steel finally broke down below its uptrending 50DMA in a move that seems to signal the end of the rally. I will hang onto my latest tranche of call options (expiration in October) given the thesis, but I will add no more until X gets back its bullish strut. Note that a July downgrade from Citi dragged X to this very same spot.

Can U.S. Steel (X) conquer the latest severe downgrade?

Ulta Beauty (ULTA)
I am still waiting for my next trade in ULTA. The current slide down the 20DMA validates my exit the moment ULTA sold downward from this point of resistance. I am looking for buyers to come back to life around $216 where ULTA will meet its lower-BB.

Ulta Beauty (ULTA) has been trapped by its downward sloping 20DMA ever since its broke down below its 50DMA.

KB Home (KBH)
Friday was a WILD day for KBH. In the first 25 minutes of trading, the stock soared 6.7%. By the “witching hour” of 2:30pm Eastern, KBH lost that entire gain. Buyers barely dragged the stock back to a fractional gain at the close. According to briefing.com, M&A speculation was swirling around the company.

The move befitted a bizarre news week for KBH. Earlier in the week, news broke of a neighborly spat between KBH CEO Jeffrey Mezger and the now increasingly notorious actress and comedienne Kathy Griffin and her live-in boyfriend. Mezger hurled enough invectives to earn himself a reprimand from KBH’s board in the form of a lost bonus. Griffin and her boyfriend moved in just a year ago and have already filed five noise complaints with the police about Mezger’s household. KBH reports earnings this coming week on the 28th. I will be ALL ears.

KB Home (KBH) lost all its post-earnings gains back in July. A LOT is at stake for the next earnings report with the 50DMA trending downward and 200DMA support coming up fast.

In other trades: I sold my U.S. Concrete (USCR) call option as the stock bounced perfectly off 200DMA support and slammed into 50DMA resistance. I bought the breakout for Zynga (ZNGA) that I pointed out last week. I executed the Rio Tinto (RIO) versus BHP Billiton (BHP) pairs trade, but I am already reconsidering given a ballooning buyback and dividend from RIO.

— – —

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Active AT40 (T2108) periods: Day #397 over 20%, Day #211 over 30%, Day #11 over 40%, Day #10 over 50%, Day #6 over 60% (overperiod), Day #157 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.

Be careful out there!

Full disclosure: long ORLY call options, long X call options, short ICPT and long call options, long AAPL call options, long TSLA call option, long UVXY call options, long ZNGA, long BHP call options and RIO put options

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

I took immediate notice when Axovant Sciences (AXON) went public back in late 2015. The promise of a treatment for Alzheimer’s was a huge opportunity, and I immediately had thoughts of my grandfather who struggled with the disease for years before he passed away with a heart attack. Yet, AXON had no revenues and no near-term prospect for revenues as it focused on research and development. I stayed on the sidelines, unwilling to participate in what I thought could potentially become multiple rounds of dilution from fundraising. The stock held up relatively well – including surging to an all-time high in early May and another all-time high just like week – until now…

AXON returned to my radar today after the stock lost a gut-wrenching 74% on the heels of a failed drug trial. From Reuter’s:

“Drug developer Axovant Sciences Ltd said it would stop testing its lead drug in Alzheimer’s after it failed to meet the main goals of a late-stage trial, underlining the challenges in developing treatments for the memory-robbing disease…

Axovant’s once-daily oral drug, intepirdine, belongs to a class of drugs called 5-HT6 antagonist, which works by blocking the 5-HT6 receptor to help release acetylcholine, a neurotransmitter needed for normal cognition.” (Full company press release here)

Axovant Sciences (AXON) hits an all-time low just one week after a fresh all-time high thanks to a catastrophic late stage (Phase 3) trial failure.

Source: FreeStockCharts.com

After this massive sell-off, I am much more comfortable considering taking a risk on the company. The balance of risk/reward seems more fairly valued here. For example, the company is now worth 3.3 times book (according to Yahoo Finance). As of June 30th, AXON held $297.9M in cash and (long-term) debt of $51.8M. Net cash used in operating activities in the last quarter was under $50M. I assume the company can make it for another 18 months – just long enough to raise more capital. There is of course the risk of an a new capital raise given the company likely needs to re-fortify itself against any further setbacks. The company raised $125M in April, so it will likely need to wait until late 2018 before daring to come back to the market for more.

In the meantime, AXON still has plenty of news left to come:

“‘This is a very exciting time for Axovant as we expect top-line results from five late-stage clinical studies over the next several months,’ said David Hung, M.D., chief executive officer of Axovant. ‘If successful, we believe that three of these studies — MINDSET, HEADWAY-DLB and the REM Behavior Disorder study — could potentially serve as pivotal studies and may, if approved, lead to new treatment options for people impacted by Alzheimer’s disease and Lewy body dementia.'”

The CEO’s comments in an interview on CNBC’s Halftime Report caught my interest. Hung noted that in the last 14 years not a single drug has won approval for the treatment of Alzheimer’s; 125 consecutive failed trials in all. In that context, I am surprised AXON was able to garner as high as price as it did. Yet, I found the CEO’s attitude VERY encouraging. Hung acknowledged that his company is in a risky place, but he is not allowing the fear of failure to deter his company from “entering the war.” He noted that the U.S. spends $2.6B a year to treat Alzheimer’s patients, so someone has to take on the risks. These proclamations are the words of an executive and company determined to succeed!

Axovant Alzheimer’s drug fails late-stage trial from CNBC.

AXON is selling at a discount, but I will follow the technicals before entering the speculative fray. Using my bottom-fishing principle of avoiding arguments with sellers and celebrating with buyers, I will get interested in buying when investors prove their renewed interest by closing above today’s intraday low. I will likely wait out for a confirming day as well. I use that milestone to avoid chasing the stock ever lower if pessimism keeps a firm grip on the stock. Note that I consider this situation very different from Intercept Pharmaceuticals (ICPT) which built up an extremely hefty premium going into its devastating product news last week.

CNBC’s options watcher noted a large trade on the October call options on AXON. He concluded that someone (or some people) are betting on a comeback. I am not so sure. The $7.50 strike price is just above the day’s intraday high (my threshold for buying), so it is very possible the motivated actors were on the sell-side with expectations of AXON floundering for the next 3 1/2 weeks.

A big bet on October call options for Axovant (AXON).

Source: CNBC

Regardless, this trade only involved $166,500 (before commissions) which may constitute a pittance to some major hedge fund. We may be looking at someone with lots of spare cash putting money on a lottery ticket. I will periodically check in on the options action to see whether positioning continues to change in the coming days.

Be careful out there!

Full disclosure: short ICPT shares and long calls

AT40 = 71.3% of stocks are trading above their respective 40-day moving averages (DMAs) – overbought day #2
AT200 = 58.6% of stocks are trading above their respective 200DMAs
VIX = 9.5
Short-term Trading Call: bullish

Commentary
It looks like an overbought rally is truly underway.

AT40 (T2108), the percentage of stocks closing above their 40-day moving averages (DMAs), closed at 71.3%, the second day of the overbought period. The iShares Russell 2000 ETF (IWM) gained for the 6th day in a row and the 23rd day of the last 28 since retesting its 2017 low. The Financial Select Sector SPDR ETF (XLF) closed at a fresh 10-year high by notching its 11th daily gain out of the last 16 days after retesting support formed from the 2017 breakout point in February. The S&P 500 (SPY) hit a convincing all-time high. The NASDAQ hit a new all-time high. The PowerShares QQQ ETF (QQQ) gained 0.7% but stopped well short of a new all-time high.

The iShares Russell 2000 ETF (IWM) kept its streak alive as it soars through the upper-Bollinger Band (BB) channel.

The Financial Select Sector SPDR ETF (XLF) finally confirmed the bullish invalidation of 2017’s head and shoulders pattern.

Buyers rushed into the S&P 500 and printed a fresh all-time high.

Buyers sent the NASDAQ into a new all-time high.

The PowerShares QQQ ETF (QQQ) has recovered from a 50DMA breakdown.

Per the plan I laid out in my last Above the 40 post, I am looking to load up on QQQ call options. I started on Friday when a lowball offer triggered, but I decided to take profits after the stock market rallied nicely into the close. I have also added XLF to my buy list.

The volatility index, the VIX, closed at a new low for this cycle. The VIX continues a creep toward history – a 24-year low and perhaps a new all-time low – which confirms the bullish sentiment.

The volatility index, the VIX, keeps creeping up on fresh history.

On the currency side, the Australian dollar is NOT confirming market bullishness. The currency hit a patch of weakness over the last week and a half. My favorite indicator, AUD/JPY, the Aussie against the Japanese yen, has dipped without breaking support. So while AUD/JPY is not flagging any bearishness, its failure to confirm bullishness is a mild warning to watch. I referenced the currency in an earlier post on iron ore.

The rally in AUD/JPY is now lagging the stock market.

October is the last of the three seasonally weak months, but there are no signs to indicate the month will deliver. Even if a sell-off finally erupts, the angst will most likely provide a very valuable dip to buy to play a rally as the seasonally strong period launches in November.

STOCK CHART REVIEWS

Apple (AAPL)
I do not (yet) have a play for call options this week for AAPL. Somehow the intraday dip on Friday did not trigger my lowball offer. I will be looking for a new entry on Monday and/or Tuesday.

Apple (AAPL) stalled the past two days after a sharp bounce from support.

Intercept Pharmaceutical (ICPT)
I finally covered my short on ICPT as my hedging call option expired on Friday. The timing seemed right as it looked like ICPT was about to confirm a bottoming process. Instead, the stock faded from its high of the day two days in a row. I will likely go back to shorting if ICPT breaks below the recent low. I am undecided on how to play the stock, if at all, if a rally does ensue.

Intercept Pharmaceutical (ICPT) faded from its highs the past two days. It is on the edge of starting a bottoming attempt.

iShares US Home Construction ETF (ITB)
It looks like I will not get an opportunity to buy back into home builders at discount pricing! ITB tacked on another 1.0% on its way to a fresh 10-year high. ITB alone screams bullishness for the stock market.

A rare move: the iShares US Home Construction ETF (ITB) gapped up and closed above its upper-BB.

iPath Bloomberg Coffee SubTR ETN (JO)
I have stalked JO for a long time, watching its moves from week-to-week. I finally jumped aboard on Friday as JO retested support from its August low. I think the downside risk is limited to the June low. The downtrending 200DMA keeps coming up as tough upside resistance. I like trading coffee because its demand is strong and secular. The bout of weakness in 2017 is bound to transform into a strong rally at some point in the coming year or so – that’s my bet anyway!

The iPath Bloomberg Coffee SubTR ETN (JO) has swung wildly with its downward trending 200DMA holding as resistance.

U.S Steel (X)
U.S. Steel looked “done” after a downgrade from Cohen punched it below 50DMA support. I dared to double down on my call positions anyway – so far, so good. X has rallied a surprising 5 days in a row. I am now looking for a retest of 200DMA resistance.

U.S. Steel (X) recovered from a pretty bad 50DMa breakdown.

SPDR S&P Retail ETF (XRT)
Toys R Us filed for bankruptcy on September 19, 2017. According to the Washington Post, the company’s $7.5B in debt could cause a ripple effect in the industry as a small panic ensues. XRT dipped further on the heels of the news, but is now motoring higher. I am watching closely to see whether the ETF can finally break free of 200DMA resistance and confirm the breakout. Such a move would be incredibly bullish given all the negative news weighing heavily on retailers.

The SPDR S&P Retail ETF (XRT) is once again wrestling with 200DMA downtrending resistance.

Teva Pharmaceutical Industries Limited (TEVA)
My sale of TEVA call options turned out to be well-timed. I am now looking to roll back in as 20DMA support holds. I was wondering whether I would get the next opportunity on a complete gap fill.

Teva Pharmaceutical Industries Limited (TEVA) is struggling to regain momentum from its lows.

— – —

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Active AT40 (T2108) periods: Day #402 over 20%, Day #216 over 30%, Day #16 over 40%, Day #15 over 50%, Day #11 over 60%, Day #2 over 70% (overbought)

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.

Be careful out there!

Full disclosure: long JO, long X calls

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

DexCom (DXCM) is a maker of continuous glucose monitoring (CGM) systems. Last week, the stock of the company cratered after Abbott Laboratories (ABT) received FDA approval of its competing FreeStyle Libre flash CGM. It is the first system that allows diabetics to check and monitor glucose levels without sticking themselves.

In response to the news, analysts downgraded DXCM in droves. ABT apparently received approval earlier than anticipated and entered the market with very aggressive pricing. In Mad Money on October 4, 2017, Jim Cramer reviewed the situation and ultimately concluded that DXCM is a buy on the discount; he was also bullish before the sell-off. Cramer listed the following pros for DXCM contrasted against ABT’s competitive threat:

More accurate and reliable.
More features: real-time alarms that can wake a person up and remote monitoring which enables parents to track children.
Partnership with Google to create a cheaper and smaller system.
Medicare reimbursement (on this point, I was not clear whether ABT will never be able to receive the same treatment).

Cramer also claimed that the number of diabetics who still do no monitoring constitutes a market big enough for both DXCM and ABT to share. Moreover, DXCM managed to bounce back from Medtronic’s (MDT) roll-out of its “artificial pancreas.”

All these positives may be true, but in situations like these I also believe in respecting the technicals. Right now, DXCM is dangerous given the combination of the recent massive breakdown and a slow deterioration from its last all-time high two years ago. DXCM has also yet to confirm a potential end to the selling. In my guidelines for picking a bottom to buy, I recommend avoiding fights with sellers and waiting until buyers show signs of life before buying. The chart of DXCM shows a clear stalemate at a very key technical level.

Dexcom (DXCM) collapsed last week and is now struggling to cling to a very important technical level established from 2014 to 2016

The weekly chart of Dexcom (DXCM) reveals the growing risk after the stock peaked in 2015. The breakdown from the wedge pattern is very bearish. If the stock sells off further from current support, the bearishness will rapidly worsen.

Source: FreeStockCharts.com

Based on these charts, any purchase of DXCM here would have to stop out below $42. Using my guidelines, I want to wait to buy DXCM until after it makes a new post sell-off high AND delivers a day of follow-through buying. DXCM fulfilled the criteria in the first two days after the sell-off, but slid backwards the next day. Now, it is pivoting around that important line of support defined by a peak in early 2014 and the low from 2016. Today’s close was right on that line. The good news is that the intraday lows are gradually going higher. So for now, the odds are in DXCM’s favor to trigger a new buying signal: a fresh post sell-off high and a day of follow-through buying. I will post a trade alert if DXCM meets the criteria.

Be careful out there!

Full disclosure: no position

AT40 = 73.8% of stocks are trading above their respective 40-day moving averages (DMAs) – overbought day #7
AT200 = 59.7% of stocks are trading above their respective 200DMAs
VIX = 9.7
Short-term Trading Call: bullish

Commentary
This is what a lift-off for an extended overbought rally looks like.

The S&P 500 (SPY) followed its upper-Bollinger Band (BB) the entire week and gained the first 4 days of the week. The NASDAQ followed its upper-BB but gained EACH day of the week (Friday delivered a very marginal gain). The PowerShares QQQ ETF (QQQ) gained each day of the week on its way to tagging its upper-BB the last 2 days of the week.

The S&P 500 (SPY) rallied strongly for the week with successive all-time highs.

The NASDAQ confirmed 50DMA support with a surge to a succession of new all-time highs.

The PowerShares QQQ ETF (QQQ) completed the week with two strong trading days to confirm the on-going extended overbought rally in the market.

The Financial Select Sector SPDR ETF (XLF) chimed in with its own stretch for the week to a fresh 10-year high.

The Financial Select Sector SPDR ETF (XLF) continued its sharp bounce from support.

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, took a surprising dip on Friday but remained in overbought territory. AT40 closed the week at 73.8%, dropping from 76.9%. This was AT40’s first decline in two weeks. So while AT40 did not end the week confirming the bullish sentiment, the overall trend is still positive. Granted, with another earnings season coming up, there will be plenty of potential catalysts to boot the stock market out of overbought territory.

Interestingly, the volatility index, the VIX, jumped off its all-time low. Perhaps this was a relief rally off “oversold” conditions. Whatever the driver, the end result was quite familiar. The herd of volatility faders managed to push the VIX off its high of 10.3 all the way back to 9.7. The VIX closed with a 5.0% gain.

The volatility index (VIX) popped but faded hard from its high of the day.

In trading on the indices, I flipped another round of call options on QQQ. I am still holding onto a tranche of call options on XLF that I bought to start the week. All my trades on the “usual suspects” worked out this week except a small loss I had to take on the week’s Apple (AAPL) call options.

STOCK CHART REVIEWS

Intercept Pharmaceuticals (ICPT)
I covered my short position in ICPT just in time. Just like that, ICPT gained 20% for the week. ICPT peaked out on Thursday and set up my next trade. After ICPT gapped down sharply from Thursday’s close and traded below Thursday’s low, I opened a fresh short hedged with a call option. ICPT traded another 2 points or so lower before buyers rallied the stock back toward the high of the day. That move put the balance of power back in the hands of the buyers and bulls. The next levels to watch are a breakout above Thursday’s intraday high (bullish) or a close below Friday’s low (bearish). Note on Tuesday I should have BOUGHT ICPT as soon as it opened above Monday’s close as the stock formed a bullish breakout from a small triangle or wedge pattern.

Intercept Pharmaceuticals (ICPT) had a bullish week by confirming a bottoming pattern. Friday’s gap down marred the week.

Axovant Sciences (AXON)
After AXON collapsed in late September, I described a fundamental and technical landscape for controlling trades. In this case, AXON failed the initial test. Last week, AXON managed to close at a new post-collapse high and confirmed the move with a higher close. I proceeded to buy a small starter position (earlier than I expected!). Unfortunately, AXON proceeded to lose 11.0% on Friday and closed below the buy threshold of $7.50. The chart below shows how AXON neatly met resistance at its lower-BB.

In cases like these, I continue to hold until/unless the stock cracks a new low below the intraday low that marks the collapse (say below $6.00). If AXON successfully tests its low, I might add to my position.

Axovant Sciences suffered a sharp setback in its effort to carve out a bottom.

Mylan (MYL)
Sticking with the healthcare theme, MYL also had a tremendous week. On Wednesday, MYL gapped above 200DMA resistance for a 16% gain on news of approval of its generic version of COPAXONE. I used this surge as an opportunity to lock in profits on my call options. I originally bought the call options as a counter to MYL’s sell-off in sympathy with Teva Pharmaceuticals (TEVA). I anticipated good news for earnings in two days. However, MYL guided down and the stock gapped down sharply. While MYL rallied immediately, that low of the day barely held during the rest of the month of August. I proceeded to add another call option to my position. In retrospect, I should have been more aggressive, but it was hard to do so after the company’s reduced guidance puts the big 2018 target of $6.00 EPS in question. As a reminder, the CEO gets a nice bonus check if she hits that EPS target by March, 2018.

Mylan (MYL) gapped up and returned to the level of the tight trading range from April to July.

Teva Pharmaceuticals (TEVA)
Thank goodness I took advantage of TEVA’s first September rally to take profits: MYL returned the sell-off favor to TEVA as TEVA cratered in response to the COPAXONE approval. The stock is now retesting its recent bottom. Sticking with my original trading thesis, I used this sell-off as an opportunity to restart my TEVA trade with a new tranche of call options. According to TEVA, there is an immediate upside opportunity as the company claims MYL’s approval is “at risk.” Per TEVA’s press release:

“Teva Pharmaceutical Industries Ltd. today commented that any launch by Mylan of a generic version of COPAXONE® 40mg/ml (glatiramer acetate) prior to final resolution of the pending patent appeals and other patent litigation should be considered an ‘at-risk’ launch, which could subject Mylan to significant damages among other remedies.”

If TEVA lucks out and switches places with MYL on the stock scales, I will most likely take profits on the TEVA position and get back into MYL.

The struggles for Teva Pharmaceuticals (TEVA) continue. The stock needs to hold the recent low.

Best Buy (BBY)
In mid-September, I laid out the case for a hedged play on Best Buy (BBY). At the time, I did not even realize the company would be hosting an Investor’s Day the following week. The initial response to that meeting was disastrous as BBY lost 8.0% on the day. I locked in profits on my put options and ended up with a very profitable net trade. The herd must have misinterpreted something from Investor’s Day because BBY has rallied all but 3 days ever since; or maybe technical traders jumped in because of the near test of 200DMA support. Not only has BBY closed the gap down, but also the stock trades right at the previous high. I pulled the trigger on a fresh hedged play, but I fully expect the profits to come from the upside this time and not from a sell-off.

Best Buy (BBY) made a resounding comeback from its post Investor’s Day disaster. The stock now looks ready to close its post-earnings gap down.

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Active AT40 (T2108) periods: Day #407 over 20%, Day #221 over 30%, Day #21 over 40%, Day #20 over 50%, Day #16 over 60%, Day #7 over 70% (overbought)

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.

Be careful out there!

Full disclosure: short ICPT, long ICPT call option, long TEVA call options, long XLF call options, long AXON

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

The raging bull market has helped facilitate instant excitement any time a company announces a cryptocurrency-related project or product. Xunlei Limited (XNET) is one of several companies that have enjoyed such a boost. XNET soared from just over $4 to $25 in less than two months on the heels of crypto-news.

Xunlei Limited (XNET) is riding a crypto-surge.

Source for charts: FreeStockCharts.com

I think of such stocks as the playthings of speculators, so I was very surprised to see news on December 29th that Morgan Stanley (MS) took a 5.1% passive stake in XNET. I shared the news with a trader friend because I concluded the Morgan Stanley endorsement ended the opportunity to short the stock. He agreed and informed me that MS has recently disclosed stakes in other very speculative. Wondering whether there is more to this story, I decided to check out the SEC 13G filings myself. Sure enough, since November, MS has disclosed several of speculative stakes.

I only looked back to late November, but I found a sufficient number of filings of interest. I list them below by the date of the disclosed ownership. The SEC filing typically gets released about a week after the date of the ownership stake. I put an asterisk by the names I consider particularly speculative. The percentage stake is listed along with the name of the company. A link to the SEC filing is provided on the date. I include charts of particular interest.

November 20: Pennymac Financial (PFSI), 5.3%.

PennyMac Financial (PFSI) started 2018 with an upside resolution to a Bollinger Band (BB) squeeze.

*November 27: Atara Biotherapeutics, Inc. (ATRA), 5.0%

Morgan Stanley loaded up on Atara Biotherapeutics, Inc. (ATRA) just in time to enjoy some good news from the FDA.

*November 30: SharpSpring, Inc. (SHSP), 1.1%
SHSP is the one of two single-digit stocks on the list. It is also a micro-cap stock, so I am very curious to uncover what Morgan finds so special about this small Florida-based internet services provider.

With a market cap of 36M and average daily volume of 77K, hardly anyone else besides Morgan Stanley is paying attention to Florida-based internet service provide SharpSpring (SHSP).

November 30: BlackRock 2022 Global Income Opportunity Trust (BGIO), 10.2%

*November 30: Overstock.com (OSTK), 11.4%
This position caught my interest most of all. First of all, this stake is Morgan’s largest of the ones I found. Secondly, OSTK has become a crypto/blockchain play which means, combined with the XNET position, Morgan is clearly trying to make big moves in the space.

Overstock.com (OSTK) is well-supported by its uptrending 50-day moving average (DMA) as it rides a crypto/blockchain-surge.

November 30: Highland Floating Rate Opportunity Fund (HFRO), 14.6%

*December 4: Diana containerships (DCIX), 5.3%
Of all the speculations in this list, DCIX baffled me the most. I think the chart stands by itself for generating bewilderment; DCIX traded over $700,000/share in 2011. I do not even want to count the number of reverse splits that DCIX has implemented since then.

This weekly chart of Diana Containerships (DCIX) is enough said! DCIX traded above 700,000 in 2011…

*December 7: Apptio (APTI), 5.2%

Apptio, Inc (APTI) has business in another hot area: cloud-based, software-as-a-service platforms.

*December 7: Roku (ROKU), 5.1%

Roku, Inc. (ROKU) is a recent IPO that caught fire after posting earnings.

December 12: Asbury Automotive (ABG), 5.3%

*December 22: PHH Corp (PHH), 5.5%

PHH Corporation (PHH) had a rough 2017.

Source for charts: FreeStockCharts.com

I cannot say whether Morgan Stanley has been any more speculative than usual. This exercise just opened my eyes to the range of speculation that the big boy financial institutions may dare to enjoy. I will check back on these names from time-to-time and perhaps add to the list as Morgan adds to its docket. Since some of these passive stakes have already paid off handsomely for Morgan, I suspect the gold is not done here.

Be careful out there!

Full disclosure: short OSTK shares, short OSTK call spread (note – I will not be holding these positions much longer now that I know about Morgan’s extra large stake!)

AT40 = 67.5% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 63.2% of stocks are trading above their respective 200DMAs
VIX = 9.2
Short-term Trading Call: cautiously bullish

Commentary
In my last Above the 40 I complained that market breadth was once again suffering thanks to an S&P 500 (SPY) stretching upward while AT40 continued to churn below the overbought threshold of 70%. The first trading week of 2018 closed out with a subtly new wrinkle on an even more stretched rubberband.

The S&P 500 reached well above its upper-Bollinger Band (BB) and a 0.7% gain. AT40, the percentage of stocks trading above their respective 40-day moving averages (DMAs), nudged just slightly higher. However, AT40 closed at a fresh 2 1/2 month high. At 67.5%, AT40 is now within striking distance of overbought and transitioned the churn into a sloth-like uptrend. The volatility index, the VIX, was even more interesting: it scooted higher only to fade to a flat close on the day. It is hard to imagine the S&P 500 pushing even higher from here without AT40 breaking into overbought territory to support an overstretched technical condition. Moreover, with the VIX holding the line just above all-time lows, some kind of snapback of the rubberband seems imminent. The S&P 500 should only be able to stretch further in the coming week with the VIX managing a breakdown below its all-time low (at which point I would feel compelled to double down on my hedge of call options on ProShares Ultra VIX Short-Term Futures (UVXY)).

The S&P 500 (SPY) surged to a fresh all-time high and stretched well above its upper-Bollinger Band (BB).

The volatility index, the VIX, held its ground just above its all-time low.

Thanks to MOST of the usual suspects, tech stocks sprinted higher similarly to the S&P 500. Apple (AAPL) has once again appeared as the important laggard; the stock faces some critical resistance. AAPL closed the week by finally filling last month’s gap down on iPhone X supplier news. The move also confirmed 50DMA support. YET, the 175 to 177 range has stopped AAPL in its tracks three times before. Needless to say, I held off on making a fresh weekly AAPL call option trade (last week’s trade worked out particularly well).

The NASDAQ stretched above its upper-BB to notch another all-time high.

The PowerShares QQQ ETF (QQQ) also stretched its way to yet another all-time high.

Apple (AAPL) rallied back to close the last gap down but can it break through for a new all-time high?

STOCK CHART REVIEWS

DexCom (DXCM)
Northland Capital downgraded DXCM to underperform. That action was enough to create a devastating gap down below the 50DMA and forced me to abandon ship and lock in my remaining profits. I will be keeping an eye on DXCM in case I can get back in at an even lower price. I explained my bottom-fishing on DXCM in “The Danger in DexCom…and the Opportunity.”

DexCom, Inc. (DXCM) broke down thanks to an analyst downgrade.

Macy’s (M)
Macy’s increased guidance and was rewarded with a pullback. This reaction indicates that the retail recovery has entered a new stage: no more benefit of the doubt based on low valuation. Still, Macy’s reported strong results and the stock bounced off 200DMA support. This drop is a buying opportunity with a clear stop below 50DMA support.

Macy’s is caught in wide-ranging churn above 200DMA support.

Bed Bath & Beyond (BBBY)
It looks like Bed Bath & Beyond (BBBY) is not quite ready to rebound. The early bounceback gave way to a resumption of selling. The stock closed below 50DMA support on Friday.

Bed Bath & Beyond (BBBY) closed at a post-earnings low below its 50DMA.

L Brands (LB)
LB added its own brake to the retail rally with disappointing guidance. I will be watching to see whether its 200DMA holds up as support.

L Brands (LB) dropped 12% after posting disappointing guidance. The breakdown below its 50DMA brought an end to the impressive rally from August lows.

Ulta Beauty (ULTA)
ULTA found a fresh fan in Wells Fargo. The upgrade to outperform sent the stock slamming into 200DMA resistance. I did not have a fresh position in place ahead of the upgrade, but I bought back in with a call option on Friday just as the incremental gain from the upgrade reversed.

Ulta Beauty (ULTA) is still in rally mode form its October low. The upgrade increased the odds ULTA will soon break out above 200DMA resistance even though sellers stepped right on cue at resistance.

Best Buy (BBY)
BBY fell back on Thursday in sympathy with the pause in retail stocks. Buyers returned the next day in a sign that portends well for the retail recovery trade.

Best Buy (BBY) rebounded quickly after selling off in sympathy with weaker retailers.

Autozone (AZO)
Auto parts companies are helping to carry the torch for retailers in 2018. The Bollinger Band (BB) squeezes I pointed out in my last discussion on the space resolved to the upside. AZO is at a 52-week high.

Autozone (AZO) started 2018 with an upside resolution to its Bollinger Band (BB) squeeze….and it has not looked back since.

Align Technology (ALGN)
ALGN had a rough December as its impressive upward momentum came to an abrupt end. A 50DMA breakout on Friday finished the reversal of the 50DMA breakdown in mid-December. Buyers look ready to return.

Align Technology (ALGN) broke out above 50DMA resistance and looks to resume its status as a momentum stock.

ShotSpotter (SSTI)
It took a month of growing pressure, but SSTI finally broke out above 50DMA resistance. The market failed to respond much to important insider buying last month. This month may mark the time buyers put an end to the bear raid especially given the series of good news SSTI experienced in the last month.

ShotSpotter (SSTI) broke out above 50DMA resistance in a sign of growing buying momentum.

— – —

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Active AT40 (T2108) periods: Day #469 over 20%, Day #283 over 30%, Day #83 over 40%, Day #31 over 50%, Day #22 over 60% (overperiod), Day #57 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.

Be careful out there!

Full disclosure: long UVXY calls, long SSTI, long ULTA call option, long BBBY

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

AT40 = 69.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 63.3% of stocks are trading above their respective 200DMAs
VIX = 9.9
Short-term Trading Call: cautiously bullish

Commentary
Last week, I complained about the stock market’s “rubber band” getting stretched. I claimed that AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), had to push into overbought territory (above 70%) and/or the volatility index, the VIX, had to push to new all-time lows to enable a push higher for the S&P 500 (SPY). The S&P 500 made another all-time high today, but AT40 rallied just short of the overbought threshold by closing at 69.0%, and the VIX closed with a gain 5 out of the last 6 trading days. AT40 jumped from 63.5% to 69.0% and firmly confirmed today’s rally in the stock market.

On the way here, the S&P 500 delivered a small bearish divergence on Tuesday that looked like the beginning of a confirmation of my concerns (the S&P 500 rallied while AT40 declined). Sure enough, the S&P 500 took a dip next. Yet, faithful buyers rallied the index off its low of the day and kept up the pace by creating today’s 0.7% gain and new all-time high.

The S&P 500 (SPY) delivered the shortest of hiccups before soaring to a new all-time high this week. The index has closed at or above its upper-Bollinger Band (BB) 6 out of the last 7 trading days.

The NASDAQ is matching the S&P 500 stride-for-stride.

The PowerShares QQQ ETF (QQQ) actually closed just BELOW its upper-Bollinger Band (BB) at its fresh all-time high.

The volatility index, the VIX, was faded hard on Wednesday, but it looks like it is stabilizing above all-time lows.

The brevity and shallowness of the dip is part of a months-long pattern. I was amused by the conventional financial media that assigned great weight to the selling and went on expeditions to explain the losses. Most, if not all, of those explanations appear meaningless now.

My short-term trading call remains at “cautiously bullish.” If AT40 fades from here, I will get a lot MORE cautious and likely even downgrade to no better than neutral. A close for the S&P 500 below Wednesday’s intraday low would take me quickly to bearish. However, I assume now that the market’s momentum will carry it confidently into overbought territory before any bearish signals trigger. I fully recognize that a bearish signal in this context is much less a selling trigger than it is a “stop buying and wait for the next entry” trigger.

STOCK CHART REVIEWS

Axovant Sciences (AXON)
AXON was slammed again this week on poor testing results. I laid out my trading rule on AXON three months ago. AXON failed the test, and I bailed. Another lesson learned and confirmed in risk management.

Axovant Sciences Ltd. (AXON) looks like it is on its way out the door…

Caterpillar (CAT)
CAT is “enough said.” Its relentless drive higher continues and underlines the raging bullish sentiment in the stock market. My call options sold right after the open on Monday. I am eagerly awaiting the next dip to the lower part of the upper Bollinger Band (BB) uptrending channel.

Caterpillar (CAT) keeps ripping higher to fresh all-time highs.

First Solar (FSLR)
FSLR is by far my favorite solar stock, so I am kicking myself for not having a fresh position. Today, FSLR achieved a MAJOR breakout to an amazing 6+ year high. There was a time not long ago that I thought FSLR might never reach this point, at least not for many more years. It is now time to more aggressively buy the dips.

A historic breakout for First Solar (FSLR)!

KB Home (KBH)
It is hard to believe that KBH still sports a float where 22% is sold short. Today’s post-earnings result announced as loudly as possible that home builders remain as strong as ever. KBH gapped up post-earnings to the top of its upper-BB and did not look back. The 12.3% gain took KBH to a 10 1/2 year high. I cannot wait to review this month’s housing data with KBH as context.

KB Home (KBH) made a confident statement about the state of the housing market.

Dominos Pizza (DPZ)
In this market, I play the dips where they get served. Yesterday, the CEO of Dominos announced he will retire mid-year. The stock gapped down after the open and bounced back after it traded lower. I rushed in to load up on a call option given the stock’s prior strength rallying off the November lows and its 200DMA breakout a week ago. I was rewarded much faster than expected as the call option nearly doubled with the stock ripping to a 4.9% gain. It was like the stock picked up where it left off.

DPZ closed the gap down from October earnings. I locked in profits on this trade (per rule to sell after realizing a quick double), but DPZ is solidly locked into the buy-the-dip list.

Dominos Pizza (DPZ) quickly resumed its previous momentum and closed the gap down from October’s earnings.

SPDR S&P Retail ETF (XRT)
At some point I will stop pounding the table for retail as a trading and investing theme for 2018…but today is not that day. XRT is up 4.6% year-to-date versus the S&P 500’s 3.5% year-to-date gain.

The SPDR S&P Retail ETF (XRT) has not been this high in 15 months.

Ulta Beauty (ULTA)
ULTA was tricky to play this week. The stock has yet to regain its momentum after traders quickly faded the gains from the entire Wells Fargo upgrade. Still, the past 3 days generated two hammer patterns with the lows neatly testing support at the uptrending 20DMA. The stock looks ready to lift again.

My options for this week will (very likely) go out worthless. I bought shares to ride what I think will be an eventual resumption of old momentum. I am also looking to replay call options for the next few weeks. If ULTA closes below its 20DMA, the next stop will be a visit to 50DMA support.

Ulta Beauty (ULTA) was soundly rejected from 200DMA resistance. Disappointed traders quickly took the stock down to 20DMA support from there. However, two hammers at support suggest a rebound is finally in the works.

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Active AT40 (T2108) periods: Day #473 over 20%, Day #287 over 30%, Day #87 over 40%, Day #35 over 50%, Day #26 over 60% (overperiod), Day #61 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.

Be careful out there!

Full disclosure: long UVXY calls, long ULTA

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

AT40 = 66.3% of stocks are trading above their respective 40-day moving averages (DMAs) – Day #1 of an overbought period
AT200 = 63.6% of stocks are trading above their respective 200DMAs
VIX = 11.9
Short-term Trading Call: bullish

Commentary
The S&P 500 (SPY) made a resounding comeback from the previous day’s reversal. The move validated my insistence on leaving the short-term trading call on bullish.

The S&P 500 (SPY) gained 0.9% and invalidated bearish interpretations of the previous day’s reversal.

However, while the S&P 500 made another all-time high, AT40, the percentage of stocks trading above their respective 40-day moving averages (DMAs), did NOT return to overbought territory or even make much of a dent in the previous day’s loss. In other words, the S&P 500 comeback left a bunch of stragglers behind. Those laggards narrowed the breadth of the advance. AT40 only made it back to 66.3%. AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, did not even muster a full percentage point gain.

The volatility index, the VIX, added to the intrigue. Despite a strong rally day, the VIX managed to gain 2.1% even as volatility faders took the VIX well off its high of the day. The VIX has now gained 8 out of the 9 last trading days. This move somehow failed to help ProShares Ultra VIX Short-Term Futures (UVXY) which lost 4.3%. I fought off the disappointment and decided to hold my UVXY calls one more day since it seems the VIX’s advance is still not over yet.

Note that over the last 9 trading days, the VIX has gained 30.1% while UVXY has only eked out a 3.2% gain. In fact, UVXY has traded DOWN 6 of the last 9 trading days. Obviously, this is NOT the kind of performance I expect out of my hedge. I am at a loss to explain the persistent and wide under-performance. Is something going catastrophically wrong with UVXY’s management of VIX futures? The iPath S&P 500 VIX ST Futures ETN (VXX) similarly under-performed, and ProShares Short VIX Short-Term Futures (SVXY) GAINED 2.4%!

The volatility index, the VIX, continues to hold firm and creep ever higher off 2018’s low.

So while the price action on the major indices was very bullish, the latest buyer’s stampede left some curious signals in its dust. The contrary performance of AT40 and the VIX has me on alert for *some* catalyst to emerge to spike the VIX much higher in coming days. Note that I expect a relatively large spike in the VIX to get faded just as sharply as other spikes in recent years.

STOCK CHART REVIEWS

It was easy to find conflicting signals in individual stocks.

International Business Machines (IBM)
IBM gapped higher for a 2.9% gain and almost filled the post-earnings gap down from last April.

International Business Machines (IBM) is looking good in 2018 with a 10% gain so far!

Netflix (NFLX)
NFLX held onto a slim gain on Tuesday. Today it lost 1.8% despite the market’s rally. The trading action looks toppy, but the stock will need to fall out of its upward trending trading channel to confirm any bearish implications.

Netflix (NFLX) sharply diverged from the market’s rally.

Tesla (TSLA)
TSLA is a great tell for speculative fever in the market. The stock gained a healthy 2.1% and notched a near 3-month high.

Tesla (TSLA) is defying gravity yet again. Today’s 2.1% gain definitively confirmed the recent 200DMA breakout.

Intuitive Surgical (ISRG)
ISRG hit another all-time high. The stock is up an astounding 18.1% already in the new year. IBM who?

Intuitive Surgical (ISRG) has wiped out a poor December with an impressive 2-week gain in 2018 back to all-time highs.

Goldman Sachs (GS)
The Financial Select Sector SPDR ETF (XLF) gained 0.8% on the day, but GS stumbled to a 1.9% loss on a poor post-earnings response. I have learned to take a swing at GS when it dips post-earnings. This opportunity was too good to pass up with the picture-perfect bounce off 50DMA support. I am looking for GS to at least recover this loss in the coming days or weeks.

Goldman Sachs (GS) pulled back on high post-earnings volume but held 50DMA support.

In other trading action, NVIDIA (NVDA) hit my buy trigger when it hit the lower edge of its upper-Bollinger Band (BB) channel on Tuesday. I sold my call options on today’s rally for a respectable 50%+ gain.

— – —

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Active AT40 (T2108) periods: Day #474 over 20%, Day #288 over 30%, Day #88 over 40%, Day #36 over 50%, Day #27 over 60%, Day #1 over 70% (overbought period ended 61 days below 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.

Be careful out there!

Full disclosure: long UVXY calls, long GS calls

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

AT40 = 55.9% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 60.6% of stocks are trading above their respective 200DMAs
VIX = 14.8
Short-term Trading Call: bullish

Commentary
Last Friday, the S&P 500 (SPY) rolled over a volatile dollar on its way to another all-time high. The volatility index, the VIX, rose up as the next speedbump, and the S&P 500 stumbled this time. The index fell 1.1% for its biggest 1-day loss in over 5 months. The two day loss of 1.8% is the S&P 500’s largest since it lost 2.5% over two days on September 9, 2016! So while this decline is but a pinprick compared to the stock market’s relentless gains, I am guessing it feels awful to a lot of investors.

The S&P 500 (SPY) broke its primary uptrend defined by its upper-Bollinger Band (BB) channel.

The NASDAQ marginally broke down below its primary uptrend support.

The PowerShares QQQ ETF (QQQ) declined 0.8% and just barely held onto its primary uptrend support.

The short-term trading call stays on bullish as I remain focused on buying the dip. The line in the sand between bullishness and bearishness is still around 2735. If the S&P 500 challenges that line, it may occur just above the uptrending 50-day moving average (DMA). If so, I may need to tweak the line below the 50DMA.

In recent posts, I pointed out the resiliency of the VIX since its last low on January 3, 2018. In my last Above the 40 post, I lamented that I may have lost discipline and moved too eagerly to bet on a further rise in volatility. Yet, I noted that the current week was full of events that could roil volatility. The market delivered in a big way. On Monday, the VIX surged 24.9%, and it followed up that performance with a 6.9% gain on Tuesday. With the VIX racing higher, I figured the volatility faders would show up in force at some point: a 25% spike usually marks a last gasp for angst. I tried to lock in my profits on my call options on ProShares Ultra VIX Short-Term Futures (UVXY). Fortunately, the market only filled half my order near the close of trading. I set a higher limit and got a fill right after the market opened on Tuesday.

The volatility index, VIX, finally released its pent-up energy and tagged the 15.35 pivot. It closed at a 5-month high.

The VIX neatly pulled back from the 15.35 pivot. At that point I decided it was time to join the volatility faders. With the concentrated news cycle in the rear view mirror, I am targeting the end of week for the market to start calming down. I bought a few put options on UVXY, and I plan to accumulate through the end of the week if they get cheaper. I may add to the mix a call option on ProShares Short VIX Short-Term Futures (SVXY).

#VIX is at 5+ month high and tagged the 15.35 pivot. Time to switch back to fading volatility. Target end of week for more calm. $VXX $UVXY pic.twitter.com/Pk9jaEBLvI

— Dr. Duru (@DrDuru) January 30, 2018

ProShares Ultra VIX Short-Term Futures (UVXY) has finally come alive again. Recent history suggests this is the beginning of the end of the latest rally.

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, fell hard enough to close at 55.9%. My favorite technical indicator has not been this low since mid-December. It is tempting to switch my trading call to bearish given AT40 completed two 1-day trips into overbought territory in less than 2 weeks: the failure to hold overbought conditions can be a sign of buyer exhaustion. However, the price action has been too strong to warrant such a rapid switch. I am sticking to the 2735 dividing line for the S&P 500, and treating the pullback as a time to refresh the shopping list.

STOCK CHART REVIEWS

iShares US Home Construction ETF (ITB)
Home builders are high on my shopping list. Suddenly, these stocks have delivered the dip that I concluded was unlikely to come during this seasonally strong period. The stock market’s jitters came just as important housing data missed “expectations” and thus greased the skids of home builder stocks. ITB fell hard enough this week to go negative year-to-date; the index for home builders is suddenly severely under-performing the S&P 500.

I started the latest buying with call options on ITB and Toll Brothers (TOL). On my shopping list are Century Communities (CCS) – testing 50DMA support, KB Home (KBH) – testing 50DMA support, Tri Pointe Group (TPH) – below the close from the day of angst over the tax plan, Meritage Homes (MTH) – reversed almost all its gains since the tax plan angst, and Lennar (LEN) – down 11.1% from its recent high and just below its 50DMA. I am most interested in the stocks that survive key technical challenges. In breakdown cases, I want to see a test of 200DMA support and/or a recovery above the 50DMA. My list could change as technical and earnings events unfold. I will write in more detail in the next Housing Market Review which will include a close look at the latest round of housing data.

$iShares US Home Construction ETF (ITB) is suddenly down fractionally for the year and severely underperforming the general stock market.$

iShares US Home Construction ETF (ITB) is suddenly down fractionally for the year and severely underperforming the general stock market.

Chipotle Mexican Grill (CMG)
CMG was hit yet again with news of illnesses supposedly originating at its restaurants. I decided enough is enough: I sold my shares and took my remaining profits. I will keep an eye on the stock as always, but there are much easier ways to make money in the stock market than trying to dance around CMG’s land mines.

Chipotle Mexican Grill (CMG) lost 3.1% on another bad news day. The stock bounced sharply from the lows which retested 50DMA support.

Health Care Select Sector SPDR ETF (XLV)
“Amazon panic” struck again. This time, it came with the added force of JP Morgan (JPM) and Berkshire Hathaway (BRKA). The three companies are joining forces to battle the high cost of health care to their vast businesses by offering services without concern for profits. XLV gapped down at the open, and I quickly bought a few put options.

In all the other cases of Amazon panic I have covered, I looked for the buying opportunity and (eventually) received rewards. In THIS case, I think the offending news will carry a lot of weight because of the financial resources aligned against the industry and the potential for this news to start a greater movement. At the very least, it will be hard for XLV, and particularly certain companies in the index, to regain former momentum and make new highs anytime soon. So, I am definitely not looking to buy the dip here…which is still relatively shallow right now anyway.

Health Care Select Sector SPDR ETF (XLV) may have topped out as its steep, primary uptrend came to an abrupt end on big news.

— – —

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Active AT40 (T2108) periods: Day #485 over 20%, Day #299 over 30%, Day #99 over 40%, Day #47 over 50%, Day #1 under 60% (ending 37 days over 60%), Day #5 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.

Be careful out there!

Full disclosure: long UVXY puts, long ITB call options, long KBH call spread, long XLV puts, long TOL calls

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

AT40 = 38.3% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 54.7% of stocks are trading above their respective 200DMAs
VIX = 17.3 (28.5% increase!)
Short-term Trading Call: bullish

Commentary

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” Chair Janet L. Yellen said. “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.” – Board of Governors of the Federal Reserve System, February 2, 2018

And with that disciplinary action, now former Fed Chair Janet Yellen went out in style. On her last day of work, Yellen oversaw the decision to announce a serious smackdown on Wells Fargo (WFC). This reminder of the Fed’s seriousness was quite appropriate for a day on which the market sold off amid a spike in long-term interest rates. The U.S. jobs report for January was strong once again with the added bonus of notably strong year-over-year wage growth of 2.9%. The prospect of a Fed that no longer supports market liquidity looms ever larger – making Yellen’s exit almost metaphorical.

The sell-off in iShares 20+ Year Treasury Bond ETF (TLT) accelerated this week as interest rates spiked higher.

Source: FreeStockCharts.com

The irony about an interest rate driven spook session is that anyone paying attention knows rates MUST keep going up the stronger the economy gets from here. We have been lulled to sleep, maybe even spoiled, by a slow growth, low rate economy. Yet, unemployment is essentially at rock bottom levels and more and more stimulus is being poured into the economy. Something has to give.

Having said that, I added some call options on TLT as a hedge. Bond yields have surprised in the past and have found other excuses for tumbling down. For example, if market participants get so worked up that they fear Fed rate hikes will trigger the next recession, long-term yields could come right back down.

The spooking was enough to send the S&P 500 (SPY) down 2.1% and push the NASDAQ and the PowerShares QQQ ETF (QQQ) down 2.0%. For the S&P 500, the sell-off plunged the index right past its uptrending 20-day moving average (DMA) for the first time since last November. The sellers were actually so determined that the index closed at its low of the day. These were the biggest 1 and 2-day losses since September 9, 2016; the biggest 3-day loss since September 13, 2016; and the biggest 4 and 5-day losses since June 27, 2016.

The S&P 500 took out a good chunk of its January gains in one day of trading.

The NASDAQ lost 2.0% but unlike the S&P 500 did not tag its lower-Bollinger Band.

PowerShares QQQ ETF (QQQ) sold off similarly to the NASDAQ

So February could turn out to be the anti-January. Putting the angst over the current sell-off in perspective, note that January delivered a stunning 5.6% gain for the S&P 500. Many individual stocks soared to double-digit percentage gains. This hot money created a near parabolic run-up. Just a little more than half that gain has retraced. While January’s gain was not of historic proportions, it was on the far end of the historic spectrum. In the chart below, the x-axis represents the top of a 1% range: “5%” means 4% to 5%, inclusive of 5% and not 4%.

The S&P 500’s 5.6% performance in January, 2018 was skewed to the upside with gains above 5% in the top 13 of performance over 68 years.

Source for data: Yahoo Finance

There is little historic reason to believe that February must retrace a big gain from January. In fact, after January delivers a gain over 5%, the historical odds slightly favor a positive February. Between -5% and 5%, there is essentially a 50/50 chance of a positive February. These relationships have nothing to do with the size of gains in the previous year either. I put together a bubble chart to show the three relationships. The bubble width represents the magnitude of the previous year’s performance. A white bubble is a negative year. The dotted diagonal line is a trendline.

The S&P 500’s performance in February has little to with January or the previous year’s performance except when January delivers a large positive or negative price change.

Source for data: Yahoo Finance

(Interested readers can download the Excel spreadsheet with the data, calculations, and charts here).

This pullback puts me back in a quandary over my trading strategy for overbought conditions. In recent years, I have slowed down my switch to a bearish posture once the S&P 500 exits an overbought condition. January’s strong price action in particular made me reluctant to switch quickly so I instead maintained a line in the sand at an important technical point: the low of January 10, 2018 where the market experienced a sudden, albeit small, pullback. One option for tightening up the rules is to continue ratcheting up the line as the market rallies, like a trailing stop. For example, I can set the line below the low of the last breakout IF the price action is exceptionally strong.

There is at least one caveat to the trailing stop approach: the window for bearishness would have a lower bound at an uptrending moving average line, most likely the 50DMA. Under ideal circumstances, a test of such support would occur at or near oversold conditions. As things stand now, the short-term trading call stays at bullish with a flip to bearish occurring below 2735. Given the proximity to the 50DMA, I will likely adjust the bull/bear divide to below the 50DMA. After that, the bearish window would likely be very tight with oversold conditions approaching.

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, plunged on Friday in a resounding confirmation of the sudden appearance of broad-based selling pressure. AT40 fell 14 percentage points to 38.3%, its lowest close since August of last year. The last plunge was in November where the intraday low hit 38.1%. So, I am definitely on alert for a sharp bounce to ensue in the coming week. If the selling continues, I fully expect AT40 to race toward oversold conditions (below 20%) and thus further complicate the short-term trading call. I will cross that bridge when/if we get there.

AT40 (T2108) cratered so rapidly that it has the appearance of being over-stretched and thus quasi-oversold.

The volatility index, the VIX, presented interesting challenges last week. I started the week afraid that I was over-eager in anticipating a spike in volatility. After the VIX did indeed spike, I quickly took profits and switched to fade volatility. On Thursday, the VIX plunged as low as 12.50. Instead of locking in profits again, I assumed that the jobs report would implode volatility further as one more item of uncertainty melted away. The impact was exactly the opposite as the VIX surged a whopping 28.5% and shattered the 15.35 pivot. However, even recent history shows that two extremely large volatility spikes in a week’s time are hard to sustain. So I doubled down on my ProShares Ultra VIX Short-Term Futures (UVXY) puts and added a ProShares Short VIX Short-Term Futures (SVXY) call to boot. I am bracing for a potential plunge on Monday morning to wash out more motivated sellers before the market regains its balance and begins a process of calming back down.

The volatility index, the VIX, has not closed this high since the days surrounding the Presidential election.

CHART REVIEWS
There are a LOT of fascinating charts in play now, far too many to sample here. I will be very active on SwingTradeBot trying to put some structure and organization to my search for the ripest opportunities. The charts below are just a sliver of the themes at the top of my mind.

Intel (INTC)
I love to play INTC between earnings. The week’s sell-off has effectively closed the post-earnings gap that I missed. So INTC is at the top of my shopping list this week.

Buyers in Intel (INTC) dried up completely after the first post-earnings gap up day. Now sellers have effectively erased all the post-earnings gains and threaten an important test of 50DMA support.

Caterpillar (CAT)
I chose a bad time to get long CAT. The stock now faces a critical test of 50DMA support. The next trade is simple. Survive the test, and I aggressively reload on the long side. Close below the 50DMA, and I aggressively get bearish for at least a hedge on any of my remaining bullish trading positions.

Caterpillar (CAT) lost almost all momentum after a poor post-earnings response. Its 50DMA looms as an important juncture for the stock…and perhaps sentiment throughout the industrial sector.

Apple (AAPL)
All eyes in tech should be on AAPL in the coming week. Analysts scrambled to downgrade AAPL ahead of earnings and an abiding sense of angst arose over iPhone X sales. The post-earnings response confirmed the new bearish mood. AAPL lost 4.3% in a move that looks like it confirmed a double top. Now only the 200DMA stands in the way of a complete swing to the bearish side of the ledger. I chose not to make my weekly play on AAPL this time even as I THINK AAPL is over-stretched well below its lower-Bollinger Band (BB) and primed for a relief bounce.

Apple (AAPL) faces down a critical test of 200DMA support as sentiment takes a turn for the worse against the stock.

Netflix (NFLX)
NFLX stood out in Friday’s sell-off. The stock managed to gain 0.9% and traded over $270 at one point. The stock is clinging to its upper-BB trading channel and still sits on a substantial post-earnings gain. NFLX may be pointing the way to a rebound in tech stocks and the general market. From a momentum perspective, NFLX will be high on my shopping list almost no matter what happens to market sentiment this coming week.

Netflix (NFLX) stood strong against the market sell-off on Friday. Are buyers already retaking control of the narrative?

Updates On Trading Action
I sold my put options on BHP Billiton (BHP). I took profits as BHP plunged a healthy 3.0%, and I wanted to cash in ahead of any relief rally. My thesis for a top in iron ore still stands but now I will focus on fading rallies.

I also took profits in my put options on Health Care Select Sector SPDR® ETF (XLV). I was prepared to hold the position over several weeks, but I thought Thursday’s action indicated the selling was already pausing. I missed out on Friday’s resumption of the selling pressure.

I finally sold my trading position in iPath® Bloomberg Cocoa SubTR ETN (NIB). I was relieved that NIB was able to hold its current breakout even as commodities in general fell under the pressures of higher rates and a stronger dollar. Yet, it made sense to take profits here before my good fortune turns. More on cocoa in a future post.

My disaster of the year looks like Impinj (PI). I failed twice to take profits on my post-earnings play and got caught in a disastrous 46.9% whooping on Friday as the company combined a disappointing earnings report with news of its long-time CFO’s departure. I think the selling is an over-reaction, so I am not selling into the panic. In fact, I added a small number of shares as pure speculation. =gulp=

Yellen Epilogue
In Janet Yellen’s “exit interview”, she admitted to disappointment over President Trump’s decision not to renominate her as Chair. Yellen became the first chair in “the modern era” not to get a renomination by the President. I admittedly was also disappointed (and a bit scandalized). Yellen did a great job and conducted herself admirably in the face of initial skepticism; she did everything and more to deserve a second term.

My appreciation for the Fed has greatly evolved since the days of Alan Greenspan when I regularly excoriated the Fed for creating conditions conducive to speculation and excess. Now, after Bernanke and Yellen, I have a much more measured opinion of the Fed’s work and role. Chair Yellen, I bid you farewell and wish you success in working with your old buddy Bernanke!

I congratulate Janet on her outstanding public service and look forward to being her colleague at the Brookings Institution https://t.co/kWuvQi2Qvx

— Ben Bernanke (@benbernanke) February 2, 2018

Oh yeah, speaking of Greenspan, he once again sees bubbles…in bonds and stocks…

— – —

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Active AT40 (T2108) periods: Day #485 over 20%, Day #299 over 30%, Day #99 over 40%, Day #47 over 50%, Day #1 under 60% (ending 37 days over 60%), Day #5 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.

Be careful out there!

Full disclosure: long UVXY puts, long SVXY calls, long TLT calls, long CAT calls,

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

AT40 = 14.6% of stocks are trading above their respective 40-day moving averages (DMAs) (day 2 oversold)
AT200 = 31.4% of stocks are trading above their respective 200DMAs (near 2-year low)
VIX = 29.1 (range from 27.7 to 41.1)
Short-term Trading Call: bullish

Commentary
Friday’s classic battle between buyers and sellers delivered a (short-term?) market reset – a potential point where sellers have thrown out just about everything they no longer want, and where buyers feel like merchandise is too cheap to pass up. The S&P 500 (SPY) bounced in picture-perfect style off support at its 200-day moving average (DMA). The NASDAQ and the PowerShares QQQ ETF (QQQ) bounced sharply off their lows but did not quite complete a test of 200DMA support. The iShares Russell 2000 ETF (IWM) struggled with its 200DMA support last week; on Friday, it punched through for the second time only to bounce back strong.

The S&P 500 (SPY) made a gold medal leap off its 200DMA support.

The NASDAQ travelled far but did not quite touch its 200DMA before bouncing.

Like the S&P 500 and the NASDAQ, the PowerShares QQQ ETF (QQQ) bounced sharply and closed right at its lower-Bollinger Band (BB).

The iShares Russell 2000 ETF (IWM) tested 200DMA support three out of the last four trading days. The last test came precariously close to a bearish breakdown.

Of these indices, the NASDAQ and QQQ are most likely to break last week’s low in the next near-term sell-off as the key 200DMA supports technically remain untested. However, it should take a swell of stubborn selling pressure to push these indices, and the other major ones, down from their lower-Bollinger Bands (BB) once again during oversold trading conditions.

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, dropped as low as 8.6% before closing at 14.6%. AT40 last traded that low during the January, 2016 sell-off. It is indicative of the broad-based selling and widespread market fear that held AT40 to its second day in oversold territory (below 20%).

AT40 (T2108) plunged deep into oversold territory at the market lows. Even the subsequent rally could not end the oversold period.

AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, closed at 41.4% after going as low as 34.7%. While this level did not penetrate last August’s intraday low, the current breakdown in T2107 effectively re-established the downtrend that was in place from September, 2016 to the small breakout last month. This trend bears watching once a market (relief?) rally gets underway as it could represent a hard cap for the market for some time to come.

AT200 (T2107) demonstrates the widespread damage done to long-term trends. Last Monday, over 50% of stocks suffered bearish long-term breakdowns. For the rest of the week, the market failed to recover the 50% line.

The volatility index, the VIX, remains the center of attention. The fear gauge got as high as 41.1 before fading to a close of 29.1. This was the third fade out of the last 5 trading days. So while the VIX remains high, the willingness of fear to stay aloft appears to be weakening. Fear looks ready to cede control to a market reset.

A historic run-up for the VIX in February is bracketed by important intraday highs from 2010 to 2012.

I did not get the gap down that I wanted to switch me to an aggressively bullish trading strategy, but the S&P 500’s bounce off its 200DMA while in oversold conditions was good enough for a few buys. The 5-minute chart of the S&P 500 shows that sellers chose a steady and gradual approach to dumping more stocks overboard after they got higher prices in the first 2 1/2 hours of trading.

Buyers stepped in during the first 30 minutes of trading. Sellers took the market back down for the next 3 hours. Buyers took two swipes around the 200DMA before they could take over the action. (Yellow line represents the previous day’s close).

I did nothing for the first hour of trading, wary because the market failed to deliver a washout moment. After that wait, I focused on the S&P 500 and individual stocks at key support and resistance. I bought a calendar call spread on SPY, added calls to an existing position, and loaded up on shares. I sold the shares at the close because I suspected I was carrying too much risk given the lack of a clear washout moment. If a retest of 200DMA support happens, I will get incrementally more aggressive. Of course, if selling continues from there, then I will have to consider the impact of the potential bearish turn of events on my trading strategies. Still, with the market deeply oversold, I do not expect a 200DMA breakdown without first a relief rally that exhausts the fresh buying powder of bulls.

I added to my Intel (INTC) call options. I also gulped hard and kicked off another round of weekly calls for Apple (AAPL). I still think AAPL’s 200DMA breakdown is bearish for the stock (and will help weigh on the market), but I am looking for another test of the 200DMA as resistance. My only shares on an individual stock came with Open Text (OTEX) which bounced off 50DMA support and completed a reversal of its bullish post-earnings gap up.

Again, I was not nearly as aggressive as I would have liked given the lack of a true washout event. If the market keeps rallying without such a washout, I will then look for the buyers to demonstrate some convincing show of force after AT40 exits oversold trading conditions.

On the short side, I locked in profits on my BHP Billiton (BHP) put options (per my expectation of a top in iron ore, I will fade the next rally). I ADDED a short on iShares Nasdaq Biotechnology ETF (IBB) as it retested its 200DMA as resistance. I like holding this short for a while as a small hedge on my bullish positioning. I am eyeing Caterpillar (CAT) for a retest of 50DMA resistance around $155 or $156 before reinitiating puts as another partial hedge. I made a huge flyer on a Tesla (TSLA) out of the money put. I call this “collapse insurance.” The stock suddenly looks very bearish post-earnings as buyers have failed to do their typical step into the breach upon the first signs of selling. On Thursday, I watched in surprise as a call option I bought around TSLA’s 50DMA melted away.

The chart reviews below cover some of the above-mentioned stocks and more.

CHART REVIEWS
Open Text Corporation (OTEX)

Open Text (OTEX) soared as much as 17.7% after reporting earnings. But those were the end of the good ol’ days. Sellers forced a complete reversal until support finally stood around the 50DMA.

Tesla (TSLA)

Tesla (TSLA) very briefly held 50 and 200DMA supports after earnings. Sellers have been relentless ever since. The stock traded as low as $294.76 in a retest of the post-earnings low from November.

iShares Nasdaq Biotechnology ETF (IBB)

The iShares Nasdaq Biotechnology ETF (IBB) broke down to a test of the lows from November before bouncing back to its 200DMA.

U.S. Concrete, Inc. (USCR)

U.S. Concrete (USCR) broke down below its 200DMA again, but at least the post-earnings low held. I am looking for USCR to hold its 7+ trading range.

United Parcel Service, Inc. (UPS)

United Parcel Service (UPS) (and FedEx) are the latest victims of an Amazon.com (AMZN) panic as the company is supposedly pursuing its own delivery service. Normally, I would jump on this trade for at least a bounce back to its 200DMA, but I am extremely wary given the deeply negative response to earnings.

Amazon.com (AMZN)

Amazon.com (AMZN) is sitting pretty as one of the strongest stocks during the market sell-off. AMZN survived a test of uptrending 50DMA support. This stock is a top pick given its apparent resilience.

Best Buy (BBY)

I love the way Best Buy (BBY) has held firm at 50DMA support. I am targeting it for an aggressive buy after closing above last week’s churn.

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Active AT40 (T2108) periods: Day #2 under 20% (oversold), Day #5 under 30%, Day #6 under 40%, Day #6 under 50%, Day #7 under 60%, Day #13 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 AT40 (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 CAT calls, long TSLA call and put, long OTEX shares, long SPY calendar call spread and calls, short IBB shares, long INTC calls, long AAPL calls, long UVXY puts, long SVXY calls

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

AT40 = 31.6% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 49.5% of stocks are trading above their respective 200DMAs
VIX = 19.1
Short-term Trading Call: bullish

Commentary
The S&P 500 (SPY) joined the NASDAQ and PowerShares QQQ ETF (QQQ) by closing above its 50-day moving average (DMA). The move was not nearly as dramatic as the previous day’s tech bumrush, but it is still significant as the stock market continues to heal from the recent oversold episodes. The S&P 500 did not achieve the milestone easily: after the index gapped up, sellers stepped in with just enough force to fill the gap and dip the index into negative territory. I decided to sell my SPY call options after buyers first failed to push SPY over the 50DMA hump. Buyers smelled the opportunity when SPY went read and led the charge to close the index above its 50DMA with a 1.2% gain.

Buyers and sellers fought until the bulls won the case with a 50DMA breakout for the S&P 500 (SPY).

AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, confirmed the resurgent bullishness by crossing above the 30% mark and closing at 31.6%. This is the first step in leaving oversold conditions (below 20%) in the rearview mirror.

The volatility index, the VIX, on the other hand did not follow-through on the previous day’s deep pullback. The VIX ended the day near flat after ranging between 17.60 and 20.66. After watching this back and forth, I decided to lock in my profits on my short iPath S&P 500 VIX ST Futures ETN (VXX) position in the after hours. I am primed to fade the next VIX rally. (For more details see “Periods of Extremely Low Volatility Remain Bullish – Now With Fresh Footnotes“).

The downward trajectory for the volatility index, the VIX, came to a screeching halt – the pause that refreshes or the breather before resuming the race back to normalcy?

CHART REVIEWS

Align Technology (ALGN)
ALGN is the kind of stock I am looking to trade at this juncture: strong uptrends going into the correction and a breakout above support turned resistance. Of course stocks that never broke support and turned it into resistance are even better. I bought a call option on ALGN.

Align Technology (ALGN) broke out above 50DMA support-turned resistance and looks ready to resume its upward trajectory.

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FOLLOW Dr. Duru’s commentary on financial markets via email, StockTwits, Twitter, and even Instagram!

Active AT40 (T2108) periods: Day #3 over 20%, Day #1 over 30% (ending 8 days under 30%), Day #10 under 40%, Day #10 under 50%, Day #11 under 60%, Day #17 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.

Be careful out there!

Full disclosure: long UVXY puts, long ALGN call

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

At the beginning of the year, I drew up a list of stocks that Morgan Stanley (MS) recently included in 13G filings to disclose significant stakes. My interest was sparked by a surprising stake in Xunlei Limited (XNET), and I was further surprised to find a notable list of speculative stakes by Morgan. Now that the stock market is on the mend from an episode of deeply oversold conditions, I thought I would take a quick look at the year-to-date performance of those stocks. The relatively strong performance card suggests that Morgan Stanley sure knows how to speculate!

For reference, the S&P 500 (SPY) is up 2.2% year-to-date. The more speculative NASDAQ is up 4.9% year-to-date. The even more speculative iShares Russell 2000 ETF (IWM) is up just 0.6% since the end of 2017.

Year-to-date performance of Morgan’s recent positions, mostly speculative, in descending order:

Atara Biotherapeutics, Inc. (ATRA): 151%
SharpSpring, Inc. (SHSP): 13.0%
Apptio, Inc. (APTI): 11.4%
PennyMac Financial Services, Inc. (PFSI): 11.2%
Asbury Automotive Group, Inc. (ABG): 7.5%
Overstock (OSTK): 0.4%
Highland Floating Rate Opportun (HFRO): -0.3%
BlackRock 2022 Global Income Opportunity Trust (BGIO): -1.5%
Roku (ROKU): -7.0%
Xunlei Limited (XNET): -13.0%
PHH Corporation (PHH): -15.0%
Diana Container Ships (DCIX): -31.5%

I am guessing the position in Atara is by itself enough to make up for the losing positions, including the head scratcher position in DCIX. Morgan’s strongest stocks barely swooned during the recent sell-off. ATRA is at an all-time high. APTI is just off its all-time high. SHSP actually RALLIED during the sell-off. PFSI took a spill during the sell-off, but its bounce back has been sharp enough to send the stock soaring to a new all-time high.

In other words, when Morgan speaks it likely pays to listen. However, and very ironically, my two active positions which overlap with Morgan are hedged shorts in OSTK and ROKU that I have flipped multiple times. I have not shorted XNET this year.

Morgan’s position in Atara Biotherapeutics, Inc. (ATRA) is by far its best speculation to-date in 2018. The stock continues to ride momentum from January’s success with the FDA.

PennyMac Financial Services, Inc. (PFSI) bounced sharply out of the recent sell-off. It is a bit surprising to see a mortgage company come out the sell-off with MORE vigor.

Morgan Stanley’s position in Diana Containerships Inc. (DCIX) is by far its worst of 2018. I am still scratching my head over this position since DCIX mainly just sells off day after day…

Source: FreeStockCharts.com

Full disclosure: short OSTK shares, long OSTK calendar call spread, short ROKU shares, long ROKU calls, long ROKU calendar call spread

Five months ago, I made the case for bottom-fishing in DexCom (DXCM) following the news of competitor’s Abbott (ABT) product approval. The trade was looking shaky a few weeks later when the stock made a minor new closing low from that price collapse. November earnings produced the catalyst to confirm the bottom, and the stock was off to the races for a little over a month.

Soon after the stock started drifting downward, an analyst downgraded the stock to underperform. The selling was enough to create a breakdown below 50-day moving average (DMA) support. I stopped out my position to preserve my remaining profit – concerned that the market’s response validated the analyst action. DXCM never traded lower even after cutting revenue guidance a few days later. After two months of additional consolidation, DXCM broke out today.

DexCom (DXCM) printed a very bullish breakout above its 200DMA on a 6.6% gain. A close of the September gap down is now within sight.

Source: FreeStockCharts.com

While the volume did not surge on the breakout, the move still looks bullish given the context: an on-going push to fill September’s massive gap down and the contrary buying pressure in the wake of a bearish downgrade and a somewhat disappointing earnings report. On Tuesday, DXCM will appear at the Barclays Global Healthcare Conference. I assume that investors are anticipating very good news.

I received a reminder of a very simple lesson: the power of the confirmation…or the lack thereof. In this trade, I was too eager to preserve my profits ahead of confirming a breakdown. A confirmation would have been a lower close. I should have used my profit to buffer against the emotional urge to react with the crowd. Moreover, the stock was over-extended below its lower-Bollinger Band (BB) and thus over-stretched; the hurdle was high for the stampede to continue exiting the stock!

Note well…DXCM’s breakout needs its own confirmation: a higher close.

Be careful out there!

Full disclosure: no positions

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