Here we are again. The stock market looks like it is breaking free, but there are major caveats which keep me wary and sitting on a neutral short-term trading call.
First the positive developments.
The S&P 500 (SPY) managed to follow-through on its breakout above its 50-day moving average (DMA). Sure the index gained a tiny 0.2%, but it is good enough for now.
The S&P 500 followed through on its 50DMA breakout. Depending on the perspective, the triangle that has defined trading for three months also seems to be giving way to the upside.
The iShares Russell 2000 ETF (IWM) is just $0.12 from its all-time high. The small cap index has been able to keep pushing along its upper-Bollinger Band (BB). The index is firmly running with the bulls, but it also cannot afford to turn back here and create what will look like a triple top.
The iShares Russell 2000 ETF is running with the bulls.
The volatility index, the VIX, fell yet again. The VIX has fallen 6 straight days and 10 of the last 12. The VIX closed below the start of the massive 2-day surge in February. The fear gauge is also just a hop, skip, and a jump away from “extremely low” territory (at or below 11)…which would be very bullish.
The volatility index, the VIX, is breaking away from the 15.35 pivot and plunging back to extremely low levels.
There are a few important caveats that keep me sitting on my neutral short-term trading call.
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed at 65.3%. My favorite technical indicator is just 5 percentage points away from the overbought threshold. The last two trips here have preceded a massive sell-off and a pullback. Can the third time be a charm? I want to wait and see.
AT40 (T2108) is sneaking up on overbought territory again.
The tech-laden indices lost some steam right at a critical point. In March, tech stocks completed a resounding comeback from the February sell-off only to pull right back to the February lows. The NASDAQ and the PowerShares QQQ ETF (QQQ) gapped down from those highs to form a type of abandoned baby top, a very bearish chart formation. Both indices ended last week right at the bottom of the gap down. Buyers and bulls will really need to keep pushing through this gap to confirm bullish momentum. Since the market is rarely straightforward, I fully expect tech stocks to return to churn right here with lots of head fakes for bulls and bears alike.
The NASDAQ ended the day flat as it faces down the bearish gap down from all-time highs in March.
The PowerShares QQQ ETF also ended the day flat as it faces down the bearish gap down from all-time highs in March.
The Industrial Select Sector SPDR ETF (XLI) broke out above its 50DMA, but its fade from the day's high makes the move look very timid and tepid. More importantly, the fade happened right at the downtrend line roughly in place since the January high. XLI has printed a consistent sequence of lower highs…this move could mark the next lower high. The industrials could weigh heavily on the general market even if big cap tech stocks continue powering forward.
The Industrial Select Sector SPDR ETF rallied sharply off the latest low but volume has been anemic and even declined on the move. The fade from the intraday high weakened the case for the 50DMA breakout which is an attempt to break the pattern of lower highs.
