AT40 = 69.9% of stocks are trading above their respective 40-day moving averages (DMAs) – ended 12 straight days overbought
AT200 = 59.7% of stocks are trading above their respective 200DMAs
VIX = 9.9
Short-term Trading Call: bullish (see caveats below)

Commentary

AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), slipped below the overbought threshold at 70%. The overbought period ended at 12 days. Yet, the trading action in general did not confirm the bearish implications of this drop.

The S&P 500 (SPY) and the Nasdaq printed a new marginal all-time high. Largely thanks to Apple (AAPL), the PowerShares QQQ ETF (QQQ) gapped up to a new all-time high with a 0.3% gain. Financials continued a strong rebound with a 0.7% gain from the Financial Select Sector SPDR ETF (XLF). From these moves alone, I would have guessed that the stock market is ready leave its drift behind and begin a fresh lift-off.

Small caps in the form of the iShares Russell 2000 ETF (IWM) slipped ever so slightly, but the move hardly qualified as a source of alarm. The Energy Select Sector SPDR ETF (XLE) faded from its highs to gain 0.2%. The smallest hint of trouble came from the volatility index, the VIX, which actually managed to hold onto the gain from a gap up to 9.9. Still, this move was well within the realm of noise.

The retail sector provided some truly bearish news, but SPDR S&P Retail ETF (XRT) has been in a bearish mood for most of 2017. Last week, XRT confirmed resistance at its 200DMA and today confirmed 50DMA resistance with a lower close since last Thursday’s breakdown.

The SPDR S&P Retail ETF (XRT) is back to confirming its bearish momentum for 2017.

So while AT40 formed a bearish divergence from the market, I think the move was far too subtle to ring my alarm bells. However, if the S&P 500 closes below the previous breakout on October 5th (below 2540) while AT40 continues to descend, then I will at least switch the trading call to cautiously bullish. Until then, I am keeping the bias on bullish and am looking for AT40 to quickly return to overbought territory.