AT40 = 42.9% of stocks are trading above their respective 40-day moving averages (DMAs) (traded as low as 37.6%)
AT200 = 47.9% of stocks are trading above their respective 200DMAs
VIX = 19.0 (traded as high as 21.9)
Short-term Trading Call: neutral


In my last Above the 40 post, I described how the stock market stumbled its way to the sharp edge of critical support levels for the major indices. Today, the indices got cut. The screaming headlines included news about the abuse of Facebook data and more political drama from Washington, D.C., but I strongly suspect these events were just convenient excuses for sellers to sell. The reaction to the Facebook news, a large 4% gap down, likely cut the will of buyers in the first part of the day. If the stock market were more healthy, I bet few if any of the headlines would have mattered to the originally scheduled programming.

Yesterday, the S&P 500 (SPY) gapped down below its 50-day moving average (DMA) and lost 1.4% at the close. The Nasdaq gapped down below its upper-Bollinger Band (BB) uptrend channel and lost 1.8% on the close. At its low, the Nasdaq perfectly tapped its 50DMA. The PowerShares QQQ ETF (QQQ) did the same as the Nasdaq but lost 2.1% on the day.

The S&P 500 (SPY) cut cleanly through its 50DMA support with a bearish gap down.

The Nasdaq found enough buyers to defend 50DMA support. Still, the gap down and 1.8% loss delivered a resounding confirming of last week’s bearish engulfing pattern.

Bearish engulfing patterns have really made a statement on the PowerShares QQQ ETF (QQQ).

The iShares Russell 2000 ETF (IWM) once again out-performed the major indices. IWM bounced sharply off its 50DMA and closed with a loss of 1.0%.

The iShares Russell 2000 ETF (IWM) confirmed its earlier bearish engulfing pattern. Still, buyers stepped up in force to bounce the index sharply off 50DMA support.

The bounces off intraday lows helped prop up AT40 (T2108), the percentage of stocks trading above their respective 40DMAs. AT40 dropped from 49.0% to 42.9% after trading as low as 37.6%. The volatility index, the VIX, faded sharply off its intraday high of 21.9 to end the day at 19.0. The 15.35 pivot now looks like a launching pad for this move. Based on the last two spikes in the VIX, I have to assume that near-term upside risk remains quite strong.

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