Oversold Conditions Deepen In Stock Market As Breakdowns Worsen
AT40 = 11.2% of stocks are trading above their respective 40-day moving averages (DMAs) (oversold day #2)
AT200 = 31.7% of stocks are trading above their respective 200DMAs ()
VIX = 23.0 (an increase of 44.0%)
Short-term Trading Call: bullish (change from neutral)
Commentary
The market sell-off is unfolding quickly. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), plunged ever deeper into oversold territory. This time AT40 fell from 16.7% to 11.2% to end the day at closing levels last seen during the epic January, 2016 sell-off.
{AT40 (T2108) fell off a cliff these past two trading days!}
Now that AT40 is so low, AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, becomes a lot more important to monitor as an indicator of longer-term health. The weekly chart below shows the multi-year overall downtrend is well-intact. So just like almost every other rally from oversold levels, I expect the next rally to end at an even lower AT200 high. For now, the question is just how much lower will sellers push AT200.
{AT200 (T2107) last closed this low in early 2016. Sellers still have plenty of room for pressing their points downward.}
As the breadth indicators continue to drop deeper into oversold territory, the major indices are following gravity into new or worse breakdowns. The S&P 500 (SPY) wasted little time in breaking down below its 200DMA. The index stretched further below its lower Bollinger Band (BB) as it neared flatline with its 2017 closing price.
{The S&P 500 (SPY) lost 2.1% to close with a 200DMA breakdown and a 3-month low.}
Note well that for 2018 there has only been ONE Fed meeting where the S&P 500 did not tumble soon thereafter. The February swoon was of course the worst incident as the panicked selling started the day after. This time around, the panic took six trading days to get started.
The NASDAQ extended its 200DMA breakdown with a 1.3% loss. The Invesco QQQ Trust (QQQ) gave up its 200DMA support with a 1.2% loss.
{The NASDAQ closed at a 5-month low as it confirmed its 200DMA breakdown.}
{The Invesco QQQ Trust (QQQ) closed at a 3+ month low as it broke down below its 200DMA for the first time since June, 2016.}
Small caps are leading the way in erasing 2018’s gains. The iShares Russell 2000 ETF (IWM) lost another 1.9% and closed just one point above its 2017 close.
{The iShares Russell 2000 ETF (IWM) closed at a 5-month low and is nearly flat year-to-date. IWM confirmed its 200DMA breakdown.}
Much to my dismay, the volatility index continued higher today. The VIX gained 8.8% and was up as much as 25.6%. While the volatility faders were active for the 5th of 6 trading days, the VIX’s momentum is clearly higher. I added to my put options on ProShares Ultra VIX Short-Term Futures (UVXY) by rule, but the prospects for profits by next Friday are dimming.
{The volatility index, the VIX, closed at a near 7-month high with an 8.8% gain.}
I made my first purchase of call options on SPY soon after the index broke down below its 200DMA. Per the aggressive oversold trading strategy, I will continue adding to this position during the oversold period. However, I started with an expiration for next Friday, so it is possible I will be forced to reset my strategy (likely for November expiration). Until then, I will only add after the VIX has spiked at least 10% from my last purchase. At some point (soon?), I will also buy shares of ProShares Ultra S&P500 (SSO) to hold through the extent of the recovery from oversold conditions. Given the extent of the technical damage across the entire market, I have to assume a new bearish phase is unfolding where I will be setting price targets for taking profits at important resistance levels. Still, shorting at key resistance will be very case dependent.
AT200 = 31.7% of stocks are trading above their respective 200DMAs ()
VIX = 23.0 (an increase of 44.0%)
Short-term Trading Call: bullish (change from neutral)
Commentary
The market sell-off is unfolding quickly. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), plunged ever deeper into oversold territory. This time AT40 fell from 16.7% to 11.2% to end the day at closing levels last seen during the epic January, 2016 sell-off.
{AT40 (T2108) fell off a cliff these past two trading days!}
Now that AT40 is so low, AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, becomes a lot more important to monitor as an indicator of longer-term health. The weekly chart below shows the multi-year overall downtrend is well-intact. So just like almost every other rally from oversold levels, I expect the next rally to end at an even lower AT200 high. For now, the question is just how much lower will sellers push AT200.
{AT200 (T2107) last closed this low in early 2016. Sellers still have plenty of room for pressing their points downward.}
As the breadth indicators continue to drop deeper into oversold territory, the major indices are following gravity into new or worse breakdowns. The S&P 500 (SPY) wasted little time in breaking down below its 200DMA. The index stretched further below its lower Bollinger Band (BB) as it neared flatline with its 2017 closing price.
{The S&P 500 (SPY) lost 2.1% to close with a 200DMA breakdown and a 3-month low.}
Note well that for 2018 there has only been ONE Fed meeting where the S&P 500 did not tumble soon thereafter. The February swoon was of course the worst incident as the panicked selling started the day after. This time around, the panic took six trading days to get started.
The NASDAQ extended its 200DMA breakdown with a 1.3% loss. The Invesco QQQ Trust (QQQ) gave up its 200DMA support with a 1.2% loss.
{The NASDAQ closed at a 5-month low as it confirmed its 200DMA breakdown.}
{The Invesco QQQ Trust (QQQ) closed at a 3+ month low as it broke down below its 200DMA for the first time since June, 2016.}
Small caps are leading the way in erasing 2018’s gains. The iShares Russell 2000 ETF (IWM) lost another 1.9% and closed just one point above its 2017 close.
{The iShares Russell 2000 ETF (IWM) closed at a 5-month low and is nearly flat year-to-date. IWM confirmed its 200DMA breakdown.}
Much to my dismay, the volatility index continued higher today. The VIX gained 8.8% and was up as much as 25.6%. While the volatility faders were active for the 5th of 6 trading days, the VIX’s momentum is clearly higher. I added to my put options on ProShares Ultra VIX Short-Term Futures (UVXY) by rule, but the prospects for profits by next Friday are dimming.
{The volatility index, the VIX, closed at a near 7-month high with an 8.8% gain.}
I made my first purchase of call options on SPY soon after the index broke down below its 200DMA. Per the aggressive oversold trading strategy, I will continue adding to this position during the oversold period. However, I started with an expiration for next Friday, so it is possible I will be forced to reset my strategy (likely for November expiration). Until then, I will only add after the VIX has spiked at least 10% from my last purchase. At some point (soon?), I will also buy shares of ProShares Ultra S&P500 (SSO) to hold through the extent of the recovery from oversold conditions. Given the extent of the technical damage across the entire market, I have to assume a new bearish phase is unfolding where I will be setting price targets for taking profits at important resistance levels. Still, shorting at key resistance will be very case dependent.
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