Above The 40 – Tech Stocks Snatch Center Stage As The Rest Of The Market Awaits The Fed

AT40 = 58.3% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 61.1% of stocks are trading above their respective 200DMAs
VIX = 10.6 (volatility index)
Short-term Trading Call: bullish

Commentary
At the end of April, I noted how the stock market headed into May trading with a mix of alerts. AT40, the percentage of stocks trading above their respective 40-day moving averages (DMAs), faded from intraday overbought conditions in a move that I typically interpret as bearish. Yet, the S&P 500 (SPY) displayed no reason for concern beyond an eventual retest of support at its 50DMA. Moreover, the volatility index was as sluggish as ever. The start of trading for May followed through on the mixed alerts.

Tech stocks led the way with a tremendous move by the Nasdaq (QQQ)* to a new all-time high. The Nasdaq gapped up and gained 0.7% on the day. The tech-laden index reconfirmed the dominance of bulls and buyers by once again closing on or above its upper-Bollinger Band (BB).

Since its big breakout on April 24th, the Nasdaq (QQQ) has been on an incredible roll.

While the Nasdaq was showing off on Monday, the S&P 500 (SPY) barely held onto its gain for the day. Add in Tuesday’s slight gain, and the index is still stuck in the muck of a tight 6-day trading range.

The S&P 500 (SPY) sits stuck just below its all-time as the momentum from the “French Fly” quickly lost gas.

AT40 also failed to follow the Nasdaq’s lead. On Monday, my favorite technical indicator had to recover from an intraday loss. On Tuesday, AT40 closed even with the end of Friday’s plunge.

The biggest show-off on Monday was the volatility index, the VIX. The VIX closed at 10.1 and a 10-year low. Since 1990, there have only been 14 other trading days that delivered lower closes. Thinking that the VIX would bounce back quickly given Wednesday’s Fed meeting, soon after the open I sold my put options on ProShares Ultra VIX Short-Term Futures (UVXY). If I had just held into the close, I would have locked in good profits on my overall UVXY call/put hedge.