AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), fell as low as 9.4% on Friday. AT40 dropped as low as 8.6% intraday during the February swoon (February 9, 2018 to be exact). Since 1986, AT40 has closed below 9.4% only 92 trading days, and AT40 last closed below this level on January 21, 2016 at 8.3%. The day before that, AT40 closed at 7.4% and traded as low as 3.8%. AT40 obviously cannot trade much lower than these levels.

AT200, the percentage of stocks trading above their respective 200DMAs, is very important now as an oversold gauge. AT200 closed the week at 32.3%. In January, 2016, AT200 managed to get as low as 9.0%, a level last seen around the historic March, 2009 bottom. In other words, while AT40 suggests the market is set up for a sustained bounce, AT200 reminds me that these oversold extremes can get yet more extreme if panic gets a fresh heaping of fuel.

Trading action around important technical levels also reminds me that the market could go lower. The S&P 500 (SPY) is essentially back to flat for the year but is still 7.2% above this year’s double bottom. A retest will be in play if the index fails to win what is perhaps the stock market’s most important battle: a test of 200DMA support. During the February swoon, the S&P 500 only ONCE closed below its 200DMA. The index closed below its 200DMA on Thursday and set up Friday’s drama. The index gapped up just above its 200DMA in an effort to clear out bearish sentiment. Sellers quickly closed the gap and then failed to take the index lower. Buyers fought off a test of the intraday low and managed to churn the index toward the day’s open for a 1.4% gain on the day. It was a messy way to demonstrate the importance of the 200DMA. If buyers can follow through early this coming week, the technical pattern will look like a (short-term) washout of the market’s most motivated and panicked sellers. I call this a conditional reprieve in the middle of oversold conditions because of the critical nature of this 200DMA pivot.

The S&P 500 closed right on top of its 200DMA support after sellers almost ruined an opening gap up.

The NASDAQ had a battle similar to the S&P 500’s; the main difference came with an intraday pullback that did not create a complete reversal of the gap up. The Invesco QQQ Trust (QQQ) did not fully reverse its gap above the 200DMA. Its 2.8% gain on the day has the look of a successful, and bullish, reversal of a 200DMA breakdown.

The NASDAQ gained 2.3% with a gap up and then close just below its 200DMA.

The Invesco QQQ Trust (QQQ) made a convincing leap with the reversal of the opening gap up only touching 200DMA support. QQQ ended the day with a 2.8% gain.

While the big indices fared well at the end of the day, other indices did not. Their poor performance underlined Friday’s conditional reprieve. Some of these sectors need to wake up to help the stock market mount a credible and sustainable bounce out of oversold conditions.

The faders managed to keep these indices plastered with bearish sentiment. The iShares Russell 2000 ETF (IWM) closed flat after sellers completely reversed the opening gap up. The Financial Select Sector SPDR ETF (XLF) suffered a similar fate. This disappointment was even more critical given the wake of bank earnings from the likes of JP Morgan Chase (JPM). The iShares US Home Construction ETF (ITB) held no pretense of recovery as its fade resulted in a 1.0% loss and fresh 17-month low. ITB has dropped 17 of the last 18 trading days in a sign of a near complete market retreat from home builders.

The iShares Russell 2000 ETF (IWM) ended the day flat as it clings to the starting point of the big May breakout.

Bank earnings failed to save Financial Select Sector SPDR ETF (XLF). Sellers faded the opening gap up to a flat close on the day. At least buyers were able to bounce back from a fresh 2018 intraday low.

The iShares US Home Construction ETF (ITB) continued its epic slide with an 18th straight down day. The 1.0% loss closed ITB at a 17-month low.

As suggested by the breadth indicators, the sell-off is causing broad damage. The Health Care Select Sector SPDR ETF (XLV) had a solid uptrend coming out of the February swoon. XLV even broke out to a new all-time high in late August. Last week, XLV broke down solidly below its 50DMA support and nearly reversed all its gains from the breakout.

The Health Care Select Sector SPDR ETF (XLV) gained 1.5% in a return to the lower Bollinger Band. A 50DMA breakdown is not confirmed.