T2108 Status: 73.4% (overbought)
T2107 Status: 68.3%
VIX Status: 14.1
General (Short-term) Trading Call: cautiously bullish
Active T2108 periods: Day #80 over 20%, Day #79 over 30%, Day #76 over 40%, Day #10 over 50%, Day #9 over 60%, Day #2 over 70% (overbought)
Commentary
The S&P 500 nudged higher with marginal gains thanks to a late day fade from the highs. The meager 0.1% gain on the day was of course unimpressive. Yet other indicators were a lot more encouraging. T2108, the percentage of stocks trading above their respective 40-day moving averages (DMAs), followed-through on the previous day’s punch into overbought territory with a close at 73.4%. This close near the highs of the day and a 2.48 percentage point gain delivered the convincing follow-through gain that the index did not. Even the NASDAQ underwhelmed with a 0.1% loss on the day.
The highlight of the day was T2107, the percentage of stocks trading above their respective 200DMAs. Like T2108, T2107 followed through on the previous day’s gain, but it did not deliver the big breakout from the post-recession downtrend that I am eager to see. The chart below is a close-up on the recent action with the downtrend line represented by the black line in the upper-right corner. T2107 closed right under that line after a small fade…
No breakout quite yet for T2107
The volatility index, the VIX, made an interesting move by gapping down to 12.77 and then rallying for the rest of the day. The VIX is valiantly trying to hold the lows of the recent range. The failure of the VIX to proceed lower provides perfect tension against the market’s attempt to break out to a new all-time high.
The volatility index rallies almost the entire day to recover from an initial gap down.
Two big moves caught most of my attention on the day: housing and retail.
The iShares US Home Construction (NYSE:ITB) popped 1.6% to easily out-perform the S&P 500 on the day. Despite a fade from the intraday high, ITB still managed to score a marginal 6-month high. This is the follow-through buying I was looking for to confirm that the ITB likely has more room to run past the expiration of the seasonal trade on home builders. I will be launching a fresh tranche of call options on ITB and getting back into Toll Brothers Inc (NYSE:TOL). TOL looks like it sells well under potential value.
The iShares US Home Construction (ITB) pops as buying volume picks up as well.
Toll Brothers (TOL) has not quite broken out yet. Even when it does, the 200DMA looms overhead as downtrend resistance.
Ralph Lauren (NYSE:RL) provided the other big move. The stock gapped down at the open for a 10.2% loss. Buyers took over from there with a bold move to completely close the gap! This move is another example of the eagerness of buyers to grab “bargains”; the move represents an underlying preference to buy over sell in the current market. Before I turned cautiously bullish on the market, I had targeted SPDR S&P Retail (NYSE:XRT) for a short given all the bad news from retailers this past earnings cycle. RL reminded me that sentiment may have already turned for the better in the sector.
Ralph Lauren posts a very impressive post-earnings recovery.
The SPDR S&P Retail ETF (XRT) has steadily recovered since last month’s low. XRT has almost filled the losses from the Macy’s Inc (NYSE:M) debacle.
Nordstrom (NYSE:JWN) has started to fill its post-earnings gap down.
Michael Kors Holdings Limited (NYSE:KORS) trades above its 50DMA again.
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
Be careful out there!
Full disclosure: long UVXY call options